Tax Prep Checklist

Entity Setup and Renewal

One of the biggest decisions for your business is deciding whether to be a sole proprietorship, partnership, S-Corp, C-Corp or LLC. We’re here to help. Review the following options and most importantly, give us a call to discuss your options and which one is best for you. Visit here for additional help!

Sole Proprietorship: You’re the sole owner, with nothing to lose as far as liability goes
Pros:
  • Entity option with the least amount of paperwork
  • No state registration required
  • Easiest to file your taxes under
  • Easiest to liquidate assets (if necessary)
  • Profits are only taxed once yearly
  • You, the owner, makes all business decisions with complete control.
Cons:
  • Unlimitied liabilities with the risk of losing everything in the event of a lawsuit
  • Obtaining business loans is more difficult as banks arae more leery of sole proprietorships.
  • Liquidation is the only option in the event of the owner’s death.
Partnerships: A sole proprietorship with more than one owner
Pros:
  • Partnerships are as easy to start as a sole proprietorships
  • Different owners can bring different strengths to the business
  • You can establish your founding agreement to state that the partnership continues in the event of one partner’s death.
Cons:
  • Partners may be jointly liable for actions of other partners
  • Partners are equally liable for the company’s debts and responsible for obligations
  • Should your business not make enough money to pay debt, any partners’ personal assets can be garnished
  • You’re not a registered business entity, so it may be more difficult to get a business loan, build credit and even earn large clients
  • Partnerships may face danger if the partners feud, one partner wants out of the business or dies
Limited Partnerships (LPs): A registered business partnership where the partners either own/operate the business, or act as “silent partners” who only act as investors
Pros:
  • Investors can serve a limited partnership role without personal liability
  • General partners receive the funding they need while still acting as the business’ sole decision makers and higher-ups
  • Limited partners can back out anytime without dissolving the whole business
Cons:
  • General partners bare sole responsibility for the business’ debts and responsibilities
  • Costs more to create and requires a state filing, unlike general partnerships
  • If a limited partner becomes too active in their business role, even unintentionally, they could be personally liable for the business
C-Corporations: A legal entity that exists separately from the owners of the company
Pros:
  • Owners aren’t personally liable for debts and responsibilities of the business
  • C-Corporations give you more opportunity for tax deductions than any other business entity option
  • The ability to offer stock options gives you another potential revenue stream
Cons:
  • Filing fees make this business entity more expensive than other business entiity options
  • C-Corporation companies pay business taxes while shareholders pay taxes on their personal returns for any dividends, leading to double taxation.
  • Any business losses cannot be deducted from owners’ personal tax returns
  • Numerous requirements to meet the “corporation” definition: Bylaws, meeting minutes and board/shareholder meetings, just to name a few
S-Corporations: A legal entity whose profits and losses pass through the owner’s personal tax returns, with corporate-level taxes
Pros:
  • Owners aren’t personally liable for debts and responsibilities of the business
  • S-Corporations are taxed similar to a sole proprietorship or partnership, so there’s no corporate taxation or double taxation.
Cons:
  • The “corporate” definition still needs met, so you’ll still need bylaws, and hold board/shareholder meetings (which can consist of one person).
  • S-Corps have more limits on issuing company stock
  • S-Corporations can also be more expensive to create than sole proprietorships or partnerships
Limited Liability Company: Also called LLCs, these take a mix of the positive aspects of the other business entity types
Pros:
  • Owners aren’t personally liable for the business’ debts or responsibilities
  • The business owner gets to decide whether the LLC is taxed as a partnership or corporation
  • You don’t have to have “boards,” “shareholders,” or those other standard corporation definitions
Cons:
  • It’s more expensive to register an LLC than proprietorships or partnerships