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Choosing Business Entity|InfoTaxSquare.com

 
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Category : > Corporation
Posted On : Tue Sep 01st,2009

 
To make a business successful from the beginning, it is very important to choose to the right structure for the business. One may choose from the different choices available like Sole Proprietorship, C Corporation, S Corporation and Limited Liability Company.
 

It is very important for an individual to choose the right structure from the Beginning to incorporate its business to avoid paying more taxes and facing re-structuring complexities in future. When beginning a business, you must decide what form of business entity and state is appropriate to establish your business. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.

MOST COMMON TYPES OF ORGANIZATION:

Sole Proprietorship - this is the easiest method of organizing your business. A sole proprietorship can be conducted by a single individual, or by an individual and his or her spouse. There are no specific filing requirements other than a business license and fictitious business name. The owner is taxed as an individual on the income or losses of the business. The major disadvantage of the sole proprietor is that the individual owner is personally responsible for all debts and liabilities of the business. This means that all of your personal assets, not just the assets of the business, are at risk.

Partnership/ General Partnership - Partnership is a form of business in which two or more sound persons come together to form a new business with the same interest in mind. In Partnership, all partners act towards the single strategic direction and all partners are equally liable. In partnership all partners share profit and losses in the ratio agreed upon. Partners are responsible for the other partner's business actions, as well as their own. Each partner is bound by the acts and representations made by their co-partners in dealing and transacting with third persons.

C Corporation - is an organization that is organized under specific provisions of the General Corporation Law. A Corporation must have corporate officers and bylaws, and must be registered with the State. In addition, the corporation will be taxed at the State and Federal level on its earnings. A corporation offers the protection from personal liability for the owners. This "corporate veil" of protection does not offer protection from liability in the case of fraud, failure to pay taxes, under capitalization of the corporation, or commingling of personal and corporate funds.

S Corporation - Similar to the "C" Corporation, the "S" corporation offers all the benefits of a corporation, but with a different tax structure. S corporations pay no Federal income tax, but pay state level tax. The S corporation's shareholders report the company's income or losses on their personal tax returns.

Limited Liability Company (LLC) - combines the limited liability protection of a corporation with the flexibility and pass through taxation of a partnership. Like the shareholders of a corporation, the owners (members) of an LLC are not personally responsible for the debts or liabilities of the LLC. The LLC has no limitations on who may be involved. The LLC can be managed by its members or by managers.

Professional Corporations (PCs)- are these entities of corporation for which many act of company make the special provision, regulating the use of the corporate form by licensed professionals such as attorneys, architects, engineers, accountants and doctors. A professional corporation is a corporation that is formed for the purpose of providing a professional service that by law a for-profit or nonprofit corporation is prohibited from rendering.

Professional limited liability companies (PLLC's)- are corporations for the purpose of providing professional services. Usually, professions where the state requires a license to provide services, such as a doctor, chiropractor, lawyer, accountant, architect, or engineer, require the formation of a Professional Limited Liability Company (PLLC

Non Profit Organization - A non-profit organization is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. Examples of nonprofit organizations include charities (i.e. charitable organizations), trade unions, and public arts organizations. Most governments and government agencies meet this definition, but in most countries they are considered a separate type of organization and not counted as nonprofit organizations.

Religious Organization - A religious corporation is a type of religious non-profit organization, which has been incorporated under the law defined by the concerned authorities. It is usually the government, who holds records of non-profit religious organizations, is responsible for regulating these religious not-for-profit corporations, say for instance Secretary of State. These not-for-profit religious corporations are recognized under the law on sub national level and usually Secretary of State of that particular state will be monitoring the activities of such religious corporations.

  


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Comments (4)
Abrar Mahboob   wrote on : Thu Jan 28th,2010
hi, this is abrar from pakistan and we want to register company in USA can you please suggest me what to do ?
Reply : infotaxsquare.com
 
Dear Abrar Mahboob: Thanks for choosing InfoTaxSquare.com for your business needs. Please read the following link for your question.

Link:
http://www.infotaxsquare.com/view_article.php?id=201


Thanks,

Documents Filing
Department!


Renee   wrote on : Wed Feb 03rd,2010
I am a chiropractor, been in practice for 10 years as a sole proprietor, have been told i should incorporate. Which one is best for me LLC or S corp, and what are the differences tax wise. Thank you
Reply : infotaxsquare.com
 
Dear Renee:

Thanks for choosing InfoTaxSquare.com for your business needs. If you form an LLC you can not avoid paying self-emploment taxes on your entire income. While you form an s-corporation you just have to  pull out reasonable salary and on rest of the income you will pay just federal, state and local taxes. If you want to read more in detail please read the following link.

Comparison Link:
http://www.infotaxsquare.com/view_article.php?id=17

Link to apply for an S-corporation:
https://www.infotaxsquare.com/processor/order-init.php?o=co

Link to apply for an LLC:
https://www.infotaxsquare.com/processor/order-init.php?o=co

InfoTaxSquare.com
Documents Filing
Department!


Warren   wrote on : Wed May 05th,2010
Why pay FUTA and state unemployment when you are the owner?
Reply : infotaxsquare.com
 

It is only required If you are pulling out payroll from business. If you have structured your business as a  corporation and have profit then both taxes are required to pay along with your p.roll taxes but If you have structured your business as an LLC (Limited Liability company) then you are not required to pay Federal Unemployment Taxes (FUTA) an (U.I) Unemployment taxes.



Tiffany   wrote on : Tue Mar 15th,2016
Me and a friend/business partner are opening up our own boutique. We'll be launching a website later this year in hopes of opening up a store front within a few years. I'm not sure if it would be okay just to apply for "partnership" and then later down the road if we do open up a store; we can apply for "LLC" ....?
Reply : infotaxsquare.com
 
What state do you want to incorporate either your partnership or LLC? Because most of the states do not allow you to convert partnership to an LLC.

 


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