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So, you’ve decided to start your own business. This is so exciting! Now comes the hard part of trying to determine how you should structure your business. There are many options available, each with their own advantages and disadvantages. Let’s look at a summary of each of the entity types from the easiest to the most complex.

  1. Sole Proprietor
    • Advantage
      • Simplest entity to create
      • No forms are required
      • Income flows directly onto the personal income tax return of individual
    • Disadvantage
      • No personal protection against business debts and obligations
  2. Limited Liability Company
    • Advantage
      • Fairly simple to form with Secretary of State
      • Limited liability for business debts and obligations
      • Income flows to personal income tax return of members
      • No limit on the number of members eligible to participate
    • Disadvantage
      • If more than one member then taxed as a partnership unless elect to be taxed as a corporation (including S Corporation)
      • May need an operating agreement if more than one member
  3. Limited Liability Partnership
    • Advantage
      • Limited liability for business debts and obligations
      • Income flows to personal income tax return of partners
      • No limit to number of partners who may participate
      • Fairly simple to form with Secretary of State
    • Disadvantage
      • Separate tax return required to be filed
      • May need a partnership agreement
  4. S Corporation
    • Advantage
      • Limited liability for business debts and obligations
      • Income flows to personal income tax return of shareholders
      • Different taxing implications for wages and dividends
      • Limitation of fringe benefits for more than a 2% shareholder
    • Disadvantage
      • Additional filing requirements with Secretary of State
      • Separate tax return required
      • Shareholders cannot be foreign nationals
      • Number of shareholders limited to 100 individuals
  5. C Corporation
    • Advantage
      • Limited liability for business debts and obligations
      • No limit to number of shareholder allowed
    • Disadvantage
      • Double Taxation
      • Additional filing requirements with Secretary of State
      • Separate tax return required
      • Potentially additional tax at the state level

If you are looking to start your new business and would like some insight into what legal entity may be most appropriate for your situation, please feel free to reach out to Robinson Legal and we would be happy to discuss your unique situation. #robinsonltd