There are three primary types of business structures, the sole proprietorship, the partnership, and several types of corporations. Within these structures many variations of the business may exist. Each state recognizes and treats these business structures differently, and each structure offers different levels of Asset Protection. Depending on the risk of your business it may be helpful to utilize a combination of these structures.
A brief overview of the primary business structures includes:
* The sole proprietorship has a single owner who has unlimited personal
liability.
* The Partnership has two or more people who have unlimited personal liability
unless it is structured as a limited partnership.
* The Limited liability company (LLC) has one or more people. The owners
are not personally liable for business debts.
* The C Corporation also has one or more people. The owners are not personally
liable for business debts.
* The S Corporation has one or more people but cannot have more than 100
owners, and they must all be US citizens. The owners are not personally
liable for business debts.
Before the advent of the LLC; the corporation was the only practical entity
for most small business owners. The choice was then between the S corporation
and the C corporation. Most small business owners, in the past, elected
the S corporation over the C corporation because the S corporation is
taxed as a proprietorship or partnership so the profits or losses would
flow directly to its stockholders. However, from an Asset Protection standpoint,
the S Corporation is not the best choice.
Larger corporations normally opted for the C corporation because of the
number of owners and the diversity of stockholders. The C corporation,
of course, carries the burden of double taxation. The C corporation pays
taxes on its earnings and the dividends are taxed again to the stockholders
when received.
The LLC combines the limited liability advantage of a corporation with
the protection of your ownership interest. For several reasons we usually
prefer an LLC to the corporation. The LLC can afford you tax benefits,
flexibility, and stronger protection than a corporation. The only real
drawback for a small business owner is the fact that the LLC is a newer
entity. Still, for its ease of use as well as the flexibility provided
based on the operating agreements, we would suggest the LLC.
If you currently own a business or are setting up a new business contact
The Presser Law Firm, P.A. for a complimentary preliminary consultation
to discuss the best business structure for you. Utilizing the expertise
of an Asset Protection Attorney to structure your business properly from
the start will save you time and money in the future.
