Choose The Right Corporate Structure
There are several different ways you can set up your business – each with its own benefits. Your job is to decide which one will offer the most for your company.
Before we discuss the corporate entities, it helps to understand how they differ from a sole proprietorship and partnership, so we’re going to cover those as well so you can see the benefits you’ll be gaining by incorporating.
1. Sole Proprietorship – A sole proprietorship is a business owned and operated by one individual. Its advantage is that you have a lot of freedom from regulations, but there are numerous disadvantages.
2. General Partnership – A general partnership is an association of two or more people who carry on a business for profit purposes. Each partner is liable for the debt and responsibilities of the company, and unlike a corporation, you have no legal protection for your personal assets.
3. Limited Partnership – A limited partnership is slightly different in that there is at least one general partner and one limited partner. A limited partner’s liability is confined by the amount of his or her investment in the company, while the general partner has unlimited personal liability.
4. Limited Liability Company (LLC) – This form of incorporation offers the protection of personal assets that sole proprietorships or partnerships do not. LLCs are perfect for startup businesses, venture capitalists and high-tech companies dealing with high risk. LLCs offer the pass-through of losses while it protects its members.
5. S Corporation – When raising money for a business, it’s a lot easier to do when you’ve formed a corporation. You can sell stock to raise capital and you don’t pay taxes on that money.
6. The Non-Profit Corporation – A Non-Profit Corporation can be formed for religious, charitable, educational, literary, or scientific purposes. There can be no financial gain to its members and there can be no participation in political campaigns.
7. C Corporation – A C-corporation is simply a general business corporation under the C subsection of the IRS code. It is a separate legal entity and files its own taxes (Form 1120) separate from the shareholders, which can be unlimited in number.