Choose Your Business Structure

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Which Business Structure Is Right For You?

While creating a company finalising on the business structure is important. This can decide on how much paper work will be necessary for the company. There are different business structures that can suit different businesses. Depending on the size and nature of your business pick a business structure that fits you the best. Once you have decided on what business to start it is important to get familiarized with the legal forms. This could decide how much of your profits will be taxed.

Types of business structure

Business structure can be broadly classified into four depending on how you want to be taxed.

Sole Proprietorship: Just as the name suggests it is a single ownership firm. This is the simplest type of structure and is for beginners. Of course there is some paperwork to it but it may not be as complex as the other arrangements. You can forget about incorporation forms and other filing charges. All that you earn through your business will come under your personal income tax. There are no worries of paying corporate tax. The only risk involved is that the proprietor is responsible for any risks and damages involving the business.

Partnership: It involves joining hands with two or more people to run a business. Here all the partners have to file tax returns as all of them share the profits. The partners jointly decide on how to run their business, any risks and damages are also shared equally. Not just profits they also share the liabilities of the business. Actions of one can affect the other partner however good or bad. Again there is no double taxation in this structure.

Corporations: These can be divided into two types. A corporation is a legal entity and the owners enjoy privileges just like they have liabilities. The best part is that the owner is free from tax responsibilities as the Corporation is responsible for paying taxes related to the business. Running a corporation is a mammoth task and hence there is lot of paperwork involved.

C Corporation: In this type of structure you join hands with investors from outside called the shareholders. These shareholders are given stock in the business. This form of business structure has separate tax entity. This involves the traditional double taxation system, tax is paid at corporate level and again tax is collected in terms of bonuses, dividends or salary. Here your personal liability is restricted.

S Corporation: This is also a legal entity, here the number of stockholder are limited. Here only one level of taxation for the business is collected. There is no double taxation. The taxes will be directed to your personal income tax hence you end up paying tax only once.

Limited Liability Corporation (LLC): This is a combination of both partnership and corporate structures. Here the owners have immunity from personal liability. The owners are referred as members. The corporation is headed by a managing member and below him are other members and there is no restriction to the number. Again here taxes passes through personal income taxes. This comes with restricted paperwork and less number of annual meetings.

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