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Business Structure

business entity structureOnce you’ve decided to start a business, choosing the right business structure is probably the most important decision you’ll make. The structure of your business is directly related to your tax liability and has substantial legal implications. As a result, the structure of your business has a direct impact on future growth potential and profits. Because of this, it’s imperative to select the right business entity for today’s needs and tomorrow’s growth. 

 

Fortunately, you don’t have to do it alone! The accounting and tax planning professionals at MB Group can help. We’ll work closely with you to understand your business and goals to guide you to the best decision in our business structure services.  

Sole Proprietorship

Partnerships

Corporation

S-Corp

LLC

Sole Proprietorship Business Structure

 

A sole proprietor is a business owner who owns and operates an unincorporated business by themselves. A few key facts and notes about sole proprietorships include:

 

  • easy to operate and form
  • owner will remain liable for any lawsuits filed against the business
  • owner reports all losses and profits on their personal income taxes

Partnership Business Entities

 

Partnership types of businesses share a lot in common with sole proprietorships. However, the key difference is partnerships will have two or more business owners. There are two different types of partnerships: general and limited partnerships. 

General Partnerships
Limited Partnerships

General Partnerships

General partnerships (GPs) are the standard type of this business entity and the default mode of ownership for more than one owner. With GPs, you’re not required to register the partnership with your respective state. 

 

Limited Partnerships

Limited partnerships (LP)s on the other hand are registered with the state. In an LP, you can have two different types of partners:

 

  • General partners are responsible for operating, owning and assuming liability for the business
  • Limited partners or silent partners are those who typically act as investors without having a hand in the day-to-day running of the business

Corporation or C-Corp Business Filing

 

Corporations are independent legal entities that exist entirely separately from the owners. The company is controlled by shareholders, officers, and a board of directors — but one person can fulfill all of these roles. In other words, even if you are a sole individual, you can still enjoy the benefits of a C-Corporation. As you can imagine, corporations have many more tax laws and regulations for compliance. A few key highlights about corporations include:

 

  • no limits on the number of shareholders
  • excellent for separating business debts from your personal assets
  • an independent tax and legal structure separates owners
  • taxation is based on shareholder dividends and corporate profits
  • must have an annual meeting with minutes recorded

S-Corporation Type of Business Structure

 

The S-Corporation is unique because it offers the legal protections of a C-Corp with pass-through taxation benefits. Pass-through taxation means it functions similarly to a partnership or sole proprietorship where the losses and profits of an S-Corp are passed through to the owner’s individual tax returns. As a result, there are no corporate-level taxes for an S-Corp. A few key benefits and facts of S-Corps include:

 

  • independent tax and legal structures separate from owners
  • owners report their share of loss and profit in their own tax returns
  • helps separate business owners assets from business debts
  • have a limit on the number of shareholders
  • all shareholders are required to be U.S. residents or citizens
  • must hold annual meetings and the minutes must be recorded

Limited Liability Company Business Filing

 

Offering the best of both worlds, a limited liability company (LLC) borrows key attractive features from each entity. Similar to sole proprietorships and partnerships, LLCs have fewer requirements and reduced paperwork. On the other hand, LLCs boast liability protections similar to those of a corporation. And when it comes to taxation, LLCs allow you to select how you would prefer the IRS categorize your business — as a corporation or a pass-through entity.  A few key benefits and facts of S-Corps include:

 

  • independent legal entities separate from the owners
  • no limit to the number of owners
  • can help separate business debts from your personal assets
  • can be taxed like a partnership if there are multiple owners or like a sole proprietorship if there is only one owner
  • isn’t required to have annual meetings or minutes
  • business is governed by operating agreements

Contact MB Group for Business Structure Consultation 

 

When it comes to choosing the best business entity, it can be confusing. However, the accounting professionals at the MB Group will be with you every step of the way. We offer decades of experience helping business owners understand the pros and cons of choosing one business entity over the other. This way, you can be confident you’ve made the most ideal solution to help inspire today’s and tomorrow’s business growth. 

 

Contact MB Group for business structure consultation and our other tax services.

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Additional Resources:

llc vs s-corp
c-corp tax rates
sole proprietorship