Choosing a business structure
Business Structure Options
Business structures are primarily defined by state law, resulting in minor variations across different states. Here are five common models to consider:
Sole Proprietorship
A sole proprietorship is an unincorporated business owned by a single individual who reports business profits on their personal tax return. This structure is the simplest and easiest to establish.
Partnership
A partnership is an unincorporated business owned by multiple individuals or entities. Profits are shared among the owners and reported on their respective tax returns. Common types of partnerships include:
General partnerships
Limited partnerships
Limited liability partnerships (LLPs)
Limited liability limited partnerships (LLLPs)
Limited Liability Company (LLC)
An LLC is a hybrid business structure that limits the personal liability of its owners, referred to as members, similar to a corporation. It allows profits to be taxed either at the member level or the corporate level.
S Corporation
An S corporation has a single class of stock and is limited to 100 shareholders, who must be individuals (not other for-profit businesses) and meet IRS residency requirements. Profits are taxed on the shareholders' tax returns, and they enjoy limited liability.
C Corporation
A C corporation is taxed once at the business level and again on an individual basis when profits are distributed to shareholders. Shareholders have limited liability for the corporation's debts, and C corporations may have multiple classes of stock and an unlimited number of shareholders.
Transitioning between business structures is feasible, but it's advisable to choose the right one early on for the next few years. Changing structures can be complex and costly, often involving legal fees that might divert attention from managing your business effectively. Our office can effectively address any legal questions about business structures. If you have any questions, please fill out the following form below and a Business Lawyer from our office will get back to you.
