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
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