How to Understand Business Structures
If you want to legally establish a business, there are multiple options available. Different business structures provide different pros and cons, so it pays to do some research before filing any paperwork. Once you understand the options available to you, you can choose the model that best suits your business needs.
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Consider the sole proprietorship. The sole proprietorship is the simplest business to set up. In this business model, there is virtually no separation between the owner and the business. The owner pays regular income tax on the profits and is directly responsible for any debts.
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Then there's the limited liability company, or LLC. The LLC is a versatile business model that is somewhere in between a sole proprietorship and a corporation. The LLC allows for flow through taxation while protecting the owners personal assets by creating a legal separation between business and owner.
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There's also the corporation. The corporation is the most formal business structure. It provides personal asset protection for the owner and is taxed as an independent entity. The corporation can also continue on even after the death of the original founder. This model has the most requirements of any business structure.
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Consider the S corporation. This model is similar to a regular corporation, or C corporation, in many ways. You still have to file a corporate tax return; however, the S corporation allows for flow through taxation. There are also some differences in ownership requirements relative to a C corporation.
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