Business Start-up Consulting
When starting a business, there are a million and one things to do. You need to raise money, hire staff, develop a marketing strategy, and the list goes on and on. But before you do any of that, you should choose a business entity structure. And this decision will have important legal and financial implications for your company. The amount of taxes you have to pay depends on your business entity choice, as does the ease with which you can get a small business loan or raise money from investors. And if someone sues your business, your business entity structure determines your risk exposure.
State governments in the U.S. recognize more than a dozen different business entity types, but the average small business owner chooses between these six: sole proprietorship, general partnership, limited partnership (LP), limited liability company (LLC), C-corporation, and S-corporation. Among these options, there is no single “best” choice for all small businesses.
There are advantages and disadvantages of each business entity type, and a business entity and tax professional can help you to determine what’s best for your company. As a starting point, though, there are three general factors to consider when choosing among business entity types: legal protection, tax treatment, and paperwork requirements. In the table below, see how the entities stack up against each of these factors.
The bottom line
Of course, this is a high-level understanding of how the common business entity types work and their respective pros and cons. But this is just the beginning to determine which of the different types of business entities works best for your small business. The best course of action is to consult a business entity and tax professional on which structure is optimal for you, given where your business is currently and where you hope to take it. Your choice of business entity is a very important one. It can affect how people perceive your business and having a big impact on your legal exposure and finances. VA Accounting and Income Tax has over 15 years of consulting with and helping small business start-ups with recommendations on the best course of action. Please feel free to get in touch for a free consultation.