Deciding what structure to use when starting a company is an essential task. The entity you use will a have significant impact on the future of your business. In particular, it can affect the way a company is managed, the rights and responsibilities of the owners, the potential liability and need for asset protection, as well as tax advantages/disadvantages. FelceLaw is here to understand your long term business goals and help you create the structure that best fits your needs.
The Different Business Entities
The types of business entities that exists are numerous and are continuing to grow. As a start-up business, it is important to understand the differences between these entities and to choose appropriately. Some of the most typical as well as some of the newest entities are:
- Sole Proprietorships
- Limited Liability Companies (LLC)
- General Partnerships
- Limited Partnerships (LP)
- Limited Liability Limited Partnerships (LLLP)
Aside from the tax implications, there are other formalities that may be necessary depending on the structure you choose. Assisting your business in keeping up with these formalities, as well as understanding the impacts of your choice is our priority. In general, you can expect that among other things, this choice will impact the following:
The way your entity is structured will directly control the manner in which official business is conducted. Some entities, such as general partnerships, will provide for equal management and control opportunities while others will lay the responsibility of management solely on one or more specified individuals. Others allow for a more customized approach in which the rights and responsibilities of each owner can be tailored to your business needs. However, the management style that's chosen may also affect the potential liability of the business owners.
Business entities provide different layers of protection for their owners. As a way of example, general partnerships are pretty easy to form but make all owners personally liable for their own actions and the business actions of other partners. On the other hand, corporations provide more protection from liability and help keep your personal assets away from creditors. However, depending on the needs of your business, there may be a tax disadvantage to this structure and the protection provided is not absolute. The needs of every company is different. Legal advice is necessary to evaluate your specific situation and help figure out what structure is right for you. FelceLaw can help structure your entity in a way that maximizes your business goals.
Depending on your structure, your business may be subject to single or double taxation. Much of this is influenced by the manner in which payments are made to the owners and their roles within their existing structure. Historically, partnerships are more favorably taxed than corporations, which are known for being subject to double taxation. Every business situation is different and there is no generic structure mechanism that will provide all the answers. Let us help you figure out the best way to keep your company's money where it belongs, in your business.