Business Entities
Business ownership is a dream of many Americans. One of the most important issues facing the potential business owner is, "What legal structure should I use to form my business? The truth is, the wrong solution can cost you money, time, and increase your risk of lawsuits. It is important to choose the business structure that best fits your needs.
Sole Proprietorship
A sole proprietorship is the easiest and least expensive business structure to establish. Outside of complying with the law, sole proprietors do not have other owners or share any profit the business generates. Despite the ease at which a sole proprietorship may be formed and operated, it is important to know the major drawbacks. In a sole proprietorship, the owner is 100% personally liable for all business debts, taxes, and court judgments against the business. This is why many sole proprietors look for an entity which will allow them to share the liability or limit it altogether.
Partnership
Like a sole proprietorship, a partnership is inexpensive to form. Partnerships can either be general or limited. In a general partnership, each partner takes on the responsibility of controlling or operating the partnership. General partnerships have no limited liability for any partner. In a limited partnership, business control and/or operation is split between the general and limited partner(s). Limited partners have no vote or say so in how the business is run. Limited partners have limited liability, however the general partner’s or partners’ is unlimited. For this Reason, the Limited Liability Company (LLC) may be a better choice in circumstances where a partnership might be considered.
Limited Liability Company (LLC)
The Limited Liability Company is a legal entity which is separate and distinct from the personal affairs and other business involvements of its owners. Any person or legal entity may own shares (units) of the LLC and all owners (members) have voting rights. The LLC gives its members a very flexible, adaptable business organization that provides liability protection comparable to that of a corporation. Where there are at least two members, the LLC may receive a partnership tax classification. It also has the ability to allocate income deductions and losses to the members in any proportion.
Corporation
The corporation is a legal entity which protects its owners from personal liability for the debts and expenses of the corporation. It is subject to a second level of taxation. Its profits are taxed and then any distributions of dividends to the shareholders are taxed a second time. Four main types of corporations are C-Corporations (C-Corps), S-Corporations (S-Corps), Professional Service Corporations (PSCs), and Not-for-profit Corporations (NFPs).
- C-Corps: The company itself is taxed on business profits. The owners pay individual income tax only on money that they draw from the corporation as salary, bonuses, or dividends.
- S-Corps: Allow their owners to enjoy the limited liability or a corporation with the tax treatment of a sole proprietorship or partnership.
- NFPs: Non-stock corporations established for a religious, charitable, social or educational purpose. Once a NFP is established, an application must be submitted to the IRS for NFP recognition.
- PSCs: Corporations that provide professional services, (medical, legal, etc.,) to the public, for which a professional license or other professional legal authorization is required.
Non-Profits
James P. Greene & Associates, for more than 30 years, has successfully worked with numerous non-profit entities to resolve tax and employment issues. Our expertise includes business formation and documentation, merger strategies, joint ventures, dissolutions, and subsidiary structures. We resolve internal issues which may jeopardize tax exempt status, such as private inurement, 990 employment taxes, 403(b) issues, and other matters related to tax exemption. We assist with grant research, advise on issues regarding the board of directors, employment, suppliers, and contracts for non-profit development.
S- Corporations
S-Corporations (S-Corps) allow their owners to enjoy the limited liability of a corporation with the tax treatment of a sole proprietorship or partnership. Operating as an S-Corp rather than a regular or C-Corp may be wise for various reasons. First, the S-Corp allows you to pass business losses through to your personal income tax, using it to offset any income that you have from other sources. Second, when you sell your S-Corp, your taxable gain on the sale of the business may be less than if you operate the business as a C-Corp.