Business ventures begin with one great idea, but they’re maintained by choosing the right identity. The structure of the business will determine how profits are shared, its legal liability, and how taxes are applied. Learn more about the different options available and consult with accountants and attorneys when it’s time to make a decision. 

What Are the Different Types of Business Structures? 

1. Sole Proprietorship

As a sole proprietor, you are your own boss, making this structure popular among small or at-home business owners. Without having a board or partner to answer to, the decisions you make are entirely your own. 

Since there’s a single owner, the structure is easy to establish, with a minimum of paperwork and only minor license fees and taxes. As a single entity, accountants may also be able to apply tax deductions. Sole proprietors are responsible for all income and debts and they pay taxes through their individual returns. 

2. Partnership 

Many choose a partnership identity when going into business with one or more people since they are more likely to receive business loans. Banks consider multiple credit lines as opposed to one, making the odds more favorable. 

There are two types of partnerships: general and limited. General partnerships share all profits equally while limited partnerships allow for one partner to have primary ownership. The other partners receive shares of the profits earned. Meet with accountants to help decide how profits and responsibilities should be split. 

3. Limited Liability Company (LLC)

An LLC provides the tax benefits of a partnership or sole proprietorship while reducing the personal liabilities of the shareholders or partners. Although the LLC provides legal protections, the extent of those protections should be explained by a lawyer when forming any business identity. 

With a multiple member LLC, profits and losses can be shared equally or divided among its members just like in a partnership.  Single member LLCs are treated like a sole proprietor.  However, LLCs have the ability to make an election to be taxed as a C or an S Corporation if they wish.

4. S Corporation

Small businesses benefit from structuring as an S corporation, as it prevents double taxation from occurring. All income, losses, credits, and deductions are the responsibility of the shareholders who must account for them on their personal income tax documents. 

5. C Corporation

C corporations are meant for larger businesses. While there may be one or more owners, shareholders and board members run C corporations. They pay corporate taxes as individual entities. 

As separate entities, personal assets will not be affected by any debts or losses experienced by the company each year. C corporations also have high growth potential with the ability to sell stocks and bring new investors aboard. 

Choosing an identity is a necessary early step to establishing a business or redesigning an existing one. To make the process easier, reach out to Hannegan & Associates in Edgewood, KY. Their accountants will walk you through your options and help you find the right entity to represent your interests. They also provide comprehensive bookkeeping, payroll, and tax planning services, so you can focus on running your business. For more information on their offerings for developing small businesses, visit their website. To make an appointment, call (859) 291-0101.