Ultimate Cheat Sheet On Business Entity

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December 30, 2017

 Choosing the right business structure is key to making the most out of your small business. It can be difficult to decide what type of entity to register as. The most common types of entities include sole proprietorships, partnerships, corporations and limited liability companies. Read up on our cheat sheets to decide what the best type of business entity is right for your business.

  1. Sole Proprietorships

A sole proprietor owns  an unincorporated business by him or herself.

Advantages:

Easy and least expensive to establish

Owner can deduct net business loss from personal income taxes


Disadvantages:

Owner is liable for any debt, judgements or other liabilities

Harder to raise capital


     2. Partnership

A partnership is a relationship existing between two or more people who come together to create or carry on a business. Each individual contributes property, labor, money or skill and has a share in the profits or losses.


Advantages:

Greater possible capital

Easy to form and operate


Disadvantages:

All owners are personally liable

Divided authority amongst owners


     3.   S-Corporations

S-corporations are corporations that elect to pass corporate income, losses and deductions to their shareholders for federal taxes.


Advantages:

Limited liability to stockholders

Lifespan, the business is a legal entity and can grow

Disadvantages:

Expensive with more paperwork

Interest of owners determines their incomes from business profits

4. C-Corporation

In a corporation, shareholders exchange money and property and can take special tax deductions. A corporation distributes profits to shareholders and recognizes net income or loss.


Advantages:

Unlimited number of shareholders

Some benefits can be deducted as business expenses


Disadvantages:

Must pay its own taxes as a separate tax entity

Extensive paperwork must be filled out to start a corporation

5. Limited Liability Corporation (LLC)

This is a business structure where owners are called members and allowed by state statute.


Advantages:

Owners can choose how the entity should be taxed

Allows great flexibility on business structure


Disadvantages:

Most expensive to establish

Some states only allow one member in the LLC

No matter what type of business entity you are interested in or that is the best fit, our experienced team here at BIG can help you get started.