Starting A New Business: What Type Of Business Entity Is Right For You?
- Posted at 02/01/2017
When you start a new business, one of the first big decisions you’ll need to make is what type of business entity will suit your company best. The most common business structures are sole proprietorship, partnership, and various corporation types; each has its own set of benefits and limitations in terms of tax and business law issues. The legal structure of your business affects not only your taxes, but also the amount of personal liability you incur, your company’s ability to raise operating capital, and the type and amount of paperwork you’ll be required to file. Working with a Schlueter, Mahoney & Ross, P.C. small business lawyer, Denver business owners get all the advice and support they need to choose the best business structure for their company, make all the required filings to operate legally.
A Sole Proprietorship is a simple business structure, and may be a good choice for a company of one. Income tax is filed on the owner’s Form 1040, along with a couple of additional forms for business profit/loss, and Self-Employment tax. It can be more difficult to raise capital for a Sole Proprietorship because many business lenders don’t serve Sole Proprietors. As a Sole Proprietor, you will likely need to use personal financing sources like home equity loans for your business. Sole Proprietors are personally liable for their business liabilities, meaning your personal assets can be affected by debts or judgments against your company.
Partnerships can be General, which means the partners have equal control over the company’s operations, and equal liability for the liabilities of the business; or Limited, which is used in cases where investors hold ownership of part of the company but are not in control of business decisions, and they don’t assume the same level of liability for the company. Limited partnerships involve far more complex documentation and reporting. General partners are each personally liable for the debts and obligations of the Partnership, much like Sole Proprietors.
In general, a corporation is a separate legal entity from its owners and its liabilities and debts are its own; owners are not personally liable for them. Corporations have more regulatory demands to meet, different accounting and tax rules, and additional filings; costs for starting and maintaining a corporation are significantly higher. There are different types of Corporations, S-corporation and C-corporation – offering distinct advantages and disadvantages, depending on the business model.
Limited Liability Company
The LLC is a hybrid business structure, combining features of Partnership with features of a Corporation, and it’s a popular choice among small businesses. It offers better tax advantages for many small businesses than a corporation would and better protection against liability than a Partnership.
With A Small Business Lawyer, Denver Companies Get The Guidance They Need
The attorneys at Schlueter, Mahoney & Ross, P.C. are highly experienced in business law, and can offer your company sound guidance and advice on choosing the best type of business structure for your specific plans and circumstances. Contact us to schedule a consultation.
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