One of the most impactful early decisions entrepreneurs make is choosing a business structure and entity. The options typically include sole proprietorship, partnership, LLC, S-Corp or C-Corp. Each has major implications on taxes, liability, maintenance requirements and more. Navigating these nuances can get overwhelming fast.
Here is what you need to know:

Sole Proprietorship

A sole proprietorship is when one owner operates the company directly without a separate business entity. It offers simplicity and fewer compliance rules. However, the business owner is personally liable for debts and legal issues. All profits also flow directly to the owner’s personal tax return.

Partnership

Similar to sole proprietorships, but with two or more co-owners. A partnership agreement should outline ownership percentages, responsibilities and decision making authority. Partnerships pass profits to owners as personal income. General partnerships pose unlimited owner liability.

LLC

An LLC (Limited Liability Company) limits owner liability and separates business and personal assets. LLCs allow pass-through taxation where profits transfer to owners’ tax returns. Comparatively easier to establish and administer than a corporation. Provides liability protections without double taxation.

S-Corp

S-Corps function similarly to LLCs from a liability standpoint but with stricter ownership rules. 100 shareholders maximum and one class of stock permitted. Considered a corporation by the IRS but taxed through individual income returns avoiding double taxation. Owners paid via “reasonable salary” combined with distributions.

C-Corp

C-Corps stand as distinct legal entities fully separate from owners. Considered the most formal corporate structure. No personal liability but profits taxed at corporate and shareholder level leading to potential double taxation. Owners paid through salaries and distributions. Additional administrative compliance.
Navigating the pros and cons of each and aligning to your specific situation deserves thoughtful consideration upfront and consultation with legal and tax advisors. Reach out to us if you need any guidance! Proper entity selection lays a strong foundation.