Small businesses truly make the world go round! If you are a current small business owner or are thinking of starting up your own company, this article is for you. Let’s explore how to decide on a business type depending on your area of work, preferences, and long-term goals. There are a lot to choose from, so this article will help you narrow down which business type is right for you!
Sole Proprietorship
The first business type that we will be exploring is a sole proprietorship. If you are running a solo business and are not employing other people, a sole proprietorship is a great option for you. Sole proprietorships are not incorporated, and there is no legal distinction between the owner and the business entity. However, if you do want to employ individuals down the line, you can do so without having to change business types. (4)
Limited Liability Company
Limited liability companies, or LLCs, are the most common business types for entrepreneurs to choose. As the name states, an LLC will help provide liability protection and keep your assets safe. An LLC will allow you to keep funds dedicated to your business separate from your personal cash. If you are planning on taking advantage of tax breaks from your business, using a company credit card, or purchasing items at a business expense, LLCs are a great choice. (2)
C Corporation
C Corp businesses are another business type that entrepreneurs explore when looking to establish and define their company. The most important differentiator that sets corporations apart is the taxation implications. C corps are subject to corporate income taxation, meaning that the business is taxed separately from owners and shareholders. (3)
S Corporation
S corporations are oftentimes confused with C corporations, which we covered above in this article. Ask corporations are subject to a special tax status from the IRS. This can come with some tax advantages, as S corporations do not pay income taxes. Typically, when an LLC makes it beyond the small business startup stage, owners will decide to transition their business to an S corporation to take advantage of the financial perks. (1)
Factors to Consider
There are a number of factors to consider when deciding on a business type for your organization. Be sure to evaluate the size of your company, type of work that you do, and goals for your business down the line. Deciding on a business type is extremely important if you are operating in a high-risk or high-regulation industry, to protect your personal assets as well as you as an individual.
Capital Requirements
As you decide on a business type and research what the best option is for you, be sure to evaluate the capital requirements as you do so. Working with an accountant and financial advisor as you make this important decision is a great choice to ensure you are being as educated as possible during the process.
To gain help and support from experts as you decide on a business type for your organization, contact Bottom Line Consulting today.
Resources:
- S Corporations – Internal Revenue Service
- LLC – Internal Revenue Service
- C Corporations – Internal Revenue Service
- Sole Proprietorship – Internal Revenue Service