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.