Which Business Structure is Right for You?
Starting a small business is an exciting venture that can pay off big in the long run. You may be eager to start making a profit but first, you have to choose a business structure. Before getting to actually running your business, you have to decide what it will operate as and file accordingly with the Secretary of State. This can be an overwhelming task as there are many structures to choose from, each with their own pros and cons. However, two of the most popular business structures for small businesses are an LLC (Limited Liability Company) or an S Corporation.
What Is An LLC?
An LLC is one of the least complex and easier structures to set up for a small business. It offers a great deal of flexibility as there are few restrictions on how to structure the ownership and management of an LLC. LLC’s are considered pass-through entities for tax purposes and get the benefit of avoiding a corporate tax. Instead, you report your profits and losses on your individual tax returns, avoiding the double taxation that corporations suffer from. By creating an LLC, you are also granted limited liability, this affords you protection for your personal assets. Limited liability in this case being that a business’s financial liability is limited to a fixed sum, usually the amount the owner has invested in the company. It also means that when your business is sued, only the business is being sued and only the business’s assets are up for grabs; your personal assets are not in danger of being seized. By creating an LLC, you get more protection for yourself and come off as a more credible business. Kentucky residents can learn more by visiting our state sponsored site for business filings forms.
What Is An S Corp?
An S Corporation can be viewed as a “lite” version of a C Corporation (i.e a large corporation such as Walmart) and is geared for smaller businesses. Like an LLC, an S Corporation offers limited liability. The limited liability also extends to shareholders, so they cannot be liable for losses incurred by the S Corporation and is an enticing benefit for initial investors. S Corporations also benefit from perpetual existence, meaning the business will continue to exist even if the owner leaves or dies. However, there is more forms to fill out when creating an S Corporation and diligent records must be kept. They also suffer from more restrictions on ownership and management structure.
These are just two of the most common business structures out there and there is a variety of advantages and disadvantages that come with each structure. The best business structure for you really boils down to what your goals and desires for your business are. Each business has its own unique characteristics and what works for one business may not work for another. If you are thinking of starting a business, it is important as well as highly beneficial to consult with an attorney about the best business structure for you.
Need Legal Advice On Structuring a New Business?
The views and opinions expressed herein are those of the authors and do not necessarily reflect the official policy or position of anyone else. Any content provided herein is not intended to malign any religion, ethic group, club, organization, company, individual or anyone or anything. The information provided herein should NOT be considered legal advice.