If someone is considering opening a business, there are a variety of things to consider, including how they will structure their commercial endeavor. The different types of businesses include sole proprietorships and partnerships, limited liability companies and corporations. Each business entity offers its own benefits and drawbacks, and each category can affect how taxes are handled and the regulations it has to follow.
With a sole proprietorship or partnership, an individual or individuals own a business and are personally liable for it, while shareholders own corporations. LLCs are a hybrid of corporations and sole proprietorships, offering liability protections to owners in addition to some tax advantages. In spite of the fact that sole proprietorships are the easiest to register and manage, LLCs are often the best choice due to the reduction in personal liability and tax breaks, which include protecting owners from being taxed as both a business and an individual.
If someone intends to start a business with shareholders, registering the endeavor as a company may be a good idea. However, it is important to note that there a variety of types of corporations. Depending on the classifications, there are differences in the ways that each type of corporation can be run and how it is taxed.
Along with the federal standings of each type of business entity, states may also treat different organizations in a different manner. Regulations and taxes may vary, so it is important to understand the benefits and requirements of each type of structure on a federal and local level, and a business and commercial law attorney may be able to help someone understand their options.
Source: Business News Daily, “LLC? S Corp.? Which Business Structure Is Right For You?“, Nicole Fallon, July 22, 2014