The business structure that you choose for your new small business makes a big difference with how you pay taxes, the amount you pay, and your personal liability should a customer or creditor sue you. Below we outline the various business structure options to help you decide the most appropriate one for your small business.
This is the simplest and one of the most common business structures. You should choose it if you are self-employed and do not intend to hire employees. You then claim your income and expenses on your personal tax return. The downside to a sole proprietorship is that you could lose personal assets in the event of a lawsuit.
Two or more individuals or businesses own the company and divide their profits and expenses. Each person reports their personal share of income and business expenses on their individual tax return. You can also opt for a specific type of partnership such as limited liability, limited, or general partnership.
Limited Liability Company
Commonly referred to as an LLC, this business structure protects partners from personal liability if someone sues the business. The members of an LLC can choose to have the Internal Revenue Service (IRS) tax their profits at a corporate or membership level.
The shareholders of a C-Corporation have limited personal liability for debts incurred by the business. The IRS allows C-Corporations to have an unlimited number of shareholders and classes of stock holdings. The corporation pays taxes on its profits one time and then again when it distributes profits to shareholders.
IRS rules state that an S-corporation cannot exceed 100 shareholders. It can also have only one class of stock, and shareholders cannot operate another for-profit business. The IRS prohibits non-residents without a valid green card to work in the United States from being a shareholder. S-corporations pay tax via their individual tax returns.
You must weigh several factors when choosing the right business structure for your small business, including your own risk tolerance. Schedule an appointment with Infinity Lending Solutions today for help in making the best decision for your company.