One of the most significant steps of launching a new company is choosing a business entity. This will determine the amount of taxes that you must pay, as well as the level of liability you assume. Improper designation of an entity can have serious financial and business law consequences. As such, you should understand the various options. Below is more information about sole proprietorships and limited liability corporations (LLC), which are two of the most common types.

Sole Proprietorship

Generally, a sole proprietorship is the easiest method for organizing and conducting business operations. Unlike an LLC, business laws in most states don’t require any legal filing to create a sole proprietorship. This entity is for entrepreneurs who wish to go into business for themselves. They maintain full ownership of the company and become solely liable for all of its debts and actions.This means that the owner’s personal assets are at risk in a lawsuit.

Also, sole proprietorships don’t distinguish between business and personal taxes. The owner reports all business income, expenses, and deductions on the same tax filing with their personal finances. However, they are also responsible for paying self-employment taxes.

Limited Liability Corporation

Like sole proprietorships, an LLC allows business owners to have complete control over their organization. However, a significant difference is that business law courts view an LLC as a separate entity from their owner. This protects the owner from liability on the company’s behalf, ensuring their personal assets aren’t at risk if the company declares bankruptcy or loses a lawsuit. The courts can only seize the business’s assets to pay off debts or damages.

Another distinction is that an LLC has more tax flexibility. The typical designation is pass-through taxation, which is similar to a sole proprietorship. However, an LLC can opt for corporate tax status. This means they pay a flat income tax percentage. They may also be eligible for more tax credits and deductions when filing as a corporation.

If you need help selecting the right structure for your organization, turn to The Law Offices of Bromm, Lindahl, Freeman-Caddy & Lausterer. These attorneys have extensive knowledge of business law and can explain your options easily. Since 1893, this firm has been serving as a trusted advisor for small business owners throughout Wahoo, NE, and the surrounding area. Call (402) 443-3225 to schedule a consultation. Visit them online to learn more about their areas of practice.