When you first look at launching a business or starting a company, you may not be aware of what the process entails. You might not even realize that there is more than one type of business structure and that one may be more suitable for your business model than others. For tax purposes and day-to-day operations, having the right business structure can be imperative. Before you make your decision, consider the following options.
Limited Liability Company (LLC)
One of the first steps in opening a company is looking at the pros and cons of each structure. With an LLC, you get to enjoy a partnership-like form, but with the benefits of a corporation.
This means your personal assets, such as houses, vehicles, and savings accounts are less likely to be at risk in lawsuits and bankruptcy. As your LLC’s profits and losses can be put through your personal income, you also don’t always have to pay corporate taxes.
LLCs typically suit medium and high-risk businesses with assets to protect. However, it’s worth knowing that having an LLC status means you have to pay tax contributions toward Social Security and Medicare insurance.
Before you’re ready to venture through the first steps of opening a company, you may like to start your business journey as a sole proprietor. This structure means you can have a trading name but are personally liable for business obligates and debts. It can be an excellent stepping stone into the world of companies, corporations, and partnerships.
Multiple business owners and professional groups may see the value in a partnership business structure. These can be general partnership (GP), limited liability partnerships (LLP) or limited partnerships (LP). Everyone in an LLP has limited liability, while LPs require at least one partner to have unlimited liability. It’s important to do your research on partnerships since they’re a bit more nuanced. Check out this comparison for a closer look at the two most common options — the LP and GP.
Several corporation types may be worth your inspection, such as S corps, C corps, B corps, non-profit corporations, and close corporations. While all fitting under the status of a corporation, they come with several advantages and disadvantages based on your unique business needs.
For example, C corps offer their owners protection from legal liability and have shareholders. They are also suitable for medium and high-risk businesses that might need to raise money.
S corps can provide even more benefits, as they avoid the same double taxation structure as C corps. To obtain S corp status, you must file with the IRS. Benefit corporations, referred to as B corps, are for-profit corporations that still provide public benefits. In some states, B corporations must submit annual benefit reports.
Alternatively, you may like to consider close corporations similar to B corps with a less traditional corporate structure. They don’t tend to operate with a board of directors.
Some businesses will choose to register as non-profit organizations. Such corporations can receive a tax-exempt status since their work is designed to benefit the public.
One of the less common options, with just over 64,000 registered in the U.S., is cooperatives. They are organizations operated to benefit those using the services. Typically, you can become a cooperative member by purchasing shares.
With so many business structures to consider, it’s essential to do your research and seek professional advice. Whether you’re already a well-established business or just starting out, one of these options above is going to prove more lucrative than the rest.