When you’re launching a small business, you must choose an entity that will determine your company’s structure. The choice will impact many important business aspects, such as tax planning, profit sharing, and growth opportunities. Given the weight of this initial decision, it’s important to work with a trusted CPA to examine each entity option and how it may benefit you. To help you prepare, here’s a brief guide to each choice and the basic benefits they offer.

5 Ways to Structure a Small Business

1. Sole Proprietorship

If you run your company on your own, a sole proprietorship may be the simplest entity option. Since this structure is the easiest and most affordable to establish, it’s often how most small businesses start. As the sole owner, you’ll get 100% of the profits, but you will also remain responsible for all the company finances and tax liabilities.

2. Partnership

When you’re collaborating with one or more people to launch a small business, a partnership may be the ideal entity structure. Like a sole proprietorship, partnerships place full financial responsibility on the owners. However, tax responsibility and profits are shared between each partner. Work with your CPA to determine how these resources are split between each partner.

3. C Corporation

If you don’t want to assume the risk of a sole proprietorship or partnership, the C corporation structure is a common solution. Under this option, the business is treated as a separate legal entity and is managed by a board, which means owners are not personally responsible for taxes, debts, or losses. Other benefits include a flat tax rate and the ability to sell stock or welcome new investors.

4. S Corporation

A C corporation can eventually evolve into an S corporation. With this structure, a business must have no more than 100 stakeholders, all of which must be US citizens. All financial aspects, including profit, are passed onto these shareholders, allowing the company to avoid federal tax liability.

5. LLC

When you want to enjoy the liability protections of a corporation, but want a simpler set-up, ask your CPA about forming an LLC (limited liability corporation). This flexible structure provides owners with proportional profit-sharing that is determined by the initial agreement. Established LLCs must be dissolved if any partners exit, so it’s important to make sure all owners are on the same page about the company’s long-term plan.

Serving businesses in the Gig Harbor, WA community, Linda M. Shiraiwa, CPA, PS Inc. is a trusted resource for those looking to organize their entrepreneurial ventures. Whether you’re establishing a small business or restructuring an existing company, this CPA will guide you through all viable entity choices for a simplified and stress-free organization process. Beyond formation, Linda Shiraiwa can also keep your company running strong with ongoing accounting services such as payroll, bookkeeping, and tax accounting. Visit this Seattle-area CPA online to learn more about these capabilities or call to schedule an informative consultation.