The Beginners Guide To Small-Business Structures
Running your own small business is a huge undertaking. There are a lot of decisions that need to be made in order to get started. One of the most important is choosing which small business structure is best for you. The options are sole proprietorship, partnerships, LLC, corporation, and cooperative.
A sole proprietorship is when you own and run your business by yourself. For most new business owners, this is the most cost-efficient structure to follow. Since the business is only in your name, you’ll owe yearly taxes for your business as well as yourself. The larger your business grows over the years, the more legal liability you may have to take on.
Partnerships are businesses in which at least two people are in charge. You can have a limited partnership or a limited liability partnership. When you enter into a limited partnership, one business partner takes on all the liability. Any other partners take on some of the liability for the business.
An LLC, or limited liability corporation, gives you the benefits of the partnership and corporation structures. In an LLC, every member is required to pay their own taxes as a self-employed individual. There are no corporate taxes to pay because business expenses go on the personal taxes of each individual with a stake in the company. Depending on the state where you run your business, you may be required to file for a new LLC if a partner joins or leaves the business.
Declaring your business as a corporation makes running it more complicated. You’ll encounter significant amounts of paperwork and various fees that you will have to pay. If you decide to make your business a corporation there are five different types. Those types are C, S, and B corps, as well as close and nonprofit corporations.
S corporations are more limiting than the other choices. At times, losses and profits appear on your personal income statements, avoiding the need to pay corporate taxes. In comparison, C corps do have corporate taxes to pay. B corps are almost the same as close corps. A close corporation business is not one that can be traded by the public.
For more information on your small business structure choices, please contact Summit Commercial Capital.