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Importance of Your Business Structure

There are several different types of business structures for new entrepreneurs. Determining your business structure is one of the most important business decisions you will make. Structure determines what tax forms you will submit to the irs. It will determine how much you will pay in those taxes, but it is so much more than that. It will determine the amount of paperwork you have to submit to the government as well as your personal liability to the company.

Sole Proprietorship

Sole proprietorship is the most basic type of business structure. Most businesses fall in this category, especially small businesses. The business is the complete responsibility, the assets and liabilities, of the business owner. Income is reported on individual tax returns. While forming a sole proprietorship needs no formal action you must obtain business license and/or permits that are required. This type of business structure is the least expensive to form.

Partnership

A partnership is formed when two or more persons contribute to the ownership of a business. Partners are not employees. Partners report profits and losses on their individual tax reports. This type of business structure require specific planning and soul searching. It is important to be clear and concise with your partners about every aspect of the business.

S Corporation

A S Corporation is taxed on an individual level. It offers only one class of stock. It is limited to 100 shareholders. This business structure offers protection for assets, as it does not hold the shareholders responsible.

Limited Liability Company (LLC)

A limited liability company structure provides the limited liability of a corporation. It offers operational flexibility of a partnership. It is allowed by state statute, therefore regulations vary by state.It may be taxed on an individual basis or as a corporation depending on those regulations and company organization.

Cooperative

Cooperatives are formed to meet a group need. The services or products of the cooperatives are created so that they benefit the all members. Some common cooperatives are found in agriculture, retail, healthcare, and other industries..

Corporation

This business structure is the most complex of the structures. Generally, this structure is meant for large, established businesses, with multiple employees. A corporation is recognized as a separate entity for tax purposes. They are taxed twice, once as a corporation then again when dividends are given to the shareholders.

Switching business structures can be done, but it is not an easy task and can be very expensive. This is a decision that you want to be sure about. Research your options, determine your costs, both immediate and in the long run to aid in this very important decision.

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