Choosing a business structure that is right for you

Selecting a business structure is an important and necessary part of the business start up process.

The most common business structures are:

• Sole Proprietorships
• Partnerships
• Corporations
• S-Corporations
• Limited Liability Companies (LLC)

Sole Proprietorships is the oldest and easiest business structure. A sole proprietor is a one man operation that is not registered with the state as a corporation or limited liability company.

Partnership is a structure that requires two or more individuals share in the ownership of the business. With a partnership, all owners share business profits and losses. For taxation purposes, partnerships are often preferred over corporations because this structure does not incur a tax on profits before it is distributed to its partners.

Corporations are unique because they exist entirely separate from its owner(s). Corporations must have at least one owner, which is known as the shareholder or stockholder. 

*S- Corporations is a regular corporation that has elected "S corporation" tax status. Forming an S corporation lets you enjoy the limited liability of a corporate shareholder but pay income taxes as if you were a sole proprietor or a partner.

*Limited Liability Corporation (LLC) is a relatively new business structure allowed by state statute.

LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. (www.irs.gov)

Note: The business structure descriptions described above are in the simpliest form. When deciding which business structure works best for you understand the structure in it's entirety and  consider how it will affect your taxes, liability, and ownership succession, and etc.

Lastly, you are not locked into any structure. As your business grows, you can always change its structure--- be sure to contact the Office of Taxation and Assessment in your state to learn the procedure for making the necessary changes.