Trying to start a business? Before you take the plunge, it’s a good time to learn about the types of business structures available. Picking one that doesn’t suit your circumstances or needs will hurt your business in the long-run and set you up for tax and liability trouble.
Most business structures are either corporations or limited liability companies (LLCs). They both offer advantages but also have important distinctions in how they are taxed and governed.
Corporations are taxed either as a regular corporation or as a Subchapter S Corporation. An S corporation does not directly pay income tax. It passes profits or losses on to the owners to file on their personal tax returns. This eliminates the threat of double taxation.
An LLC has more taxing flexibility. It can be set up to be taxed as a sole proprietorship, partnership, S corporation, or a regular corporation.
An LLC and a regular corporation differ sharply when it comes to liability. A regular corporation is held in the owner’s personal name. It is classified as personal property and is subject to forfeiture and seizure in creditor disputes. An LLC is also considered property, but its operating agreement protects ownership of the company from being seized.
Profit and Ownership
In a corporation, the ownership percentage and how profits are split and losses allocated is determined by the amount of stock owned. An LLC gives the flexibility for a greater percentage of profits to be allocated to the more active co-owner, even if both partners own equal shares in the business.
Let Us Help
Are you ready to own your own business, but need help figuring out the best corporate structure to meet your needs? Numbers House is ready to help. Contact us today at (865) 294-7300 or email us at email@example.com.