The business structure you choose is one of the most important decisions you can make for your company. The structure you choose will impact your personal liability and also determine how much you will need to pay in taxes. Every business’s situation is different, so it’s a good idea to do your research prior to making your final decision. This Union Commercial Capital blog post discusses the various types of business structures and their key characteristics.
S Corporation-
An S corporation has some restrictions. It can have only up to 99 shareholders, and cannot have certain types of shareholders including limited partnerships. An S corporation can have only one class of stock. In addition to limited liability protection, S corporations present you with some nice tax advantages. You won’t be taxed on your corporate income or your dividend income. Instead, your income and losses will be reported on your personal tax return.
C Corporation-
There are some noteworthy distinctions between a C corporation and an S corporation. A C corporation is somewhat more flexible. For instance, there can be an unlimited number of shareholders. In addition, the profits of a C corporation are taxed when earned, and taxed a second time when distributed as shares. Furthermore, the shareholders in a C corporation are not able to deduct any corporate losses. Just like S corporations, C corporations offer limited liability protection.
Sole Proprietorship-
This is the most commonly used business entity, used by more than 70 percent of businesses in the United States, according to the Small Business Administration. A sole proprietorship is the easiest type of business to organize. All that is needed is the proper licensing(if required) to do business in your area and you are good to go. As a sole prop, you are solely responsible for all liabilities, debts and losses. Some disadvantages of this structure are the increased liability if you were to receive a lawsuit or start accumulating a lot of debt.
Limited Liability Company (LLC)-
A limited liability company is a structure that allows owners, partners or shareholders to limit their personal liabilities like a corporation while enjoying the tax and flexibility benefits of a partnership or sole proprietorship. Your LLC can have an unlimited number of owners or members, and each owner can report business profit and loss on their personal tax returns. To form an LLC, you will need to file Articles of Organization with your Secretary of State. If your company needs capital for inventory, expansion, equipment, payroll or marketing, Union Commercial Capital can help. We offer small business loan products to businesses all across North America. Give us a call today to learn more about our programs.
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