{"id":1404,"date":"2016-08-25T10:39:06","date_gmt":"2016-08-25T14:39:06","guid":{"rendered":"https:\/\/fluentricciardi.com\/?p=1404"},"modified":"2022-01-31T10:40:17","modified_gmt":"2022-01-31T14:40:17","slug":"business-ownership-structures","status":"publish","type":"post","link":"https:\/\/fluentricciardi.com\/business-ownership-structures\/","title":{"rendered":"Business Ownership Structures"},"content":{"rendered":"
A necessary step in the initial stages of setting up your new business is to determine which form of business ownership structure to adopt. The ownership structure that may prove to be most appropriate will depend on circumstances such as:<\/p>\n
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This article provides a brief overview of what structures are available and the pros and cons of each. The most popular structures in use are as follows.<\/p>\n
A sole proprietorship is the simplest structure. There are no documents to file or fees to pay, and this is in stark contrast to what is required to form LLCs and corporations. You are the sole owner of your business, and you must simply begin business operations to commence a sole proprietorship.<\/p>\n
It\u2019s important, however, to be aware of your personal liabilities in this structure. As\u00a0Small Business notes<\/a>: \u201cin terms of the legal entities involved in a sole proprietorship, you and the sole proprietorship are the same thing. This means that you will pay taxes on any business profit as income on your personal taxes, and if your business has any liabilities (like a court judgment or a past due debt), you are personally liable for them.\u201d<\/p>\n According to the\u00a0IRS<\/a>, a partnership is defined as a relationship existing between two or more parties who join to carry on a trade or business. Each party contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each partner includes his or her share of the partnership’s income or loss on his or her tax return. Partners are not employees and should not be issued a Form W-2.<\/p>\n In forming a corporation–as explained by the\u00a0IRS<\/a>–prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation generally does the following things:<\/p>\n For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax, and this means two things:<\/p>\n Perhaps the main reason you would want to organize your business as an LLC is to shield yourself from any personal liability that may arise from your business’ dealings.<\/p>\n As\u00a0Small Business notes<\/a>, \u201can LLC, just like a corporation, provides limited liability to the owners of the LLC for the business’ liabilities, including debts, judgments and others.\u201d<\/p>\n Taxes, however, differentiate an LLC from a corporation. An LLC is not a separate tax entity, and ownership of the LLC are required to pay personal income taxes on any share of profits they receive during the tax year in question.<\/p>\n As SmallBusiness.com emphasizes, organizing your business as a LLC makes sense in two situations:<\/p>\n S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.<\/p>\nPartnership<\/h3>\n
Corporations (C-Corps)<\/h3>\n
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LLCs<\/h3>\n
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S Corporations<\/h3>\n