Sole Proprietorships Llcs Corporations: A Guide To Legal Forms Of
March 18th, 2009 | 
Author: Sole Proprietorships Llcs Corporations: A Guide To Legal Forms Of Business
For many business owners it can be difficult to understand the differences between various types of legal business organizations. Across all types there are benefits drawbacks and rules that apply in reference to tax liability and structure. Whats important is to be able to clearly understand what is right for your business.
Below is a brief compilation of the basic forms of business ownership in the United States emphasizing those that are most attractive to small business owners Remember: specifics of each can vary from state to state so be sure to check with your states Secretary of State Office to understand what is best for your business.
Sole Proprietorship: A sole proprietorship is an unincorporated business that is owned by one person. In this way it is the simplest form of legal organization to start and maintain. You the owner include the income and expenses of the business on your own tax return. Similarly you are also personally responsible for any business liabilities.
Limited Liability Company LLC: Authorized only in certain states an LLC is a mixture of a corporation and a partnership. LLCs are becoming a popular structure for small businesses due to their flexibility and low maintenance costs while still offering most of the advantages of a corporation. With an LLC you separate your business and personal identities distributing the ownership percentages PL and voting powers among owners. LLCs can also offer tax savings depending on how the LLC chooses to be taxed either as a partnership S Corporation or C Corporation.
S Corporation: After the corporation has been formed the stockholders may elect S Corporation status by making a filing with the IRS. Like an LLC this is another attractive option for many small businesses. An S Corporation is taxed like a partnership the profits and losses of S Corporations flow through to the federal tax returns of the owners in proportion to their stock ownership. However they are protected from the liabilities of the business as in a C Corporation.
Corporation C Corporation: In a C Corporation structure one or more stockholders are the owners managed by a board of directors elected by the stockholders and run by officers appointed by the board of directors. However a single individual can be the sole stockholder director and officer of the company. All parties are protected from the companys liabilities including liabilities for their own negligence when acting in their corporate role except in a few extraordinary circumstances. The corporation files its own tax return and pays taxes which are graduated based on the companys taxable incomes.
The ins and outs of each type of business organization as well as the state variances can appear to be overwhelming. Most important educate yourself talk to a professional and consider all your options carefully. For more details visit http://www.irs.gov/businesses/small/article/0id=9820200.html
About the writer: Andrew Brown and Small Business Guru provide Coaching Inspiration and Practical Advice for Small Business Owners and Entrepreneurs. Subscribe to the free weekly newsletter at www.smallbusinessguru.com
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