When starting a new business, choosing the appropriate structure is one of many crucial steps. A commercial enterprise’s structure can dictate things like personal liability, taxes, financing, and many other areas.
As a result, you must carefully select a business structure to ensure it fully meets your needs. Here are a few of the most common business structures and what they entail.
Sole proprietorships are the default business structure if you fail to implement another option. With a sole proprietorship, there is a link between you and your business when it comes to assets and liability. That means customers and clients can pursue you personally for any losses they experience.
Limited liability company (LLC)
LLCs offer protections that sole proprietorships do not. For example, a customer or client cannot pursue you legally on a personal level if you do business through an LLC, as you and the business are separate from a legal perspective. Additionally, you will not need to pay corporate taxes, although you must remit self-employment taxes.
There are a few different types of corporations. A C corp is completely separate from business owners, which means that it has its own liability, taxes, and profits. There are also S corps, which offer robust liability protections but without the double taxation that accompanies C corps. With C corps, the corporation must pay taxes on profits, and shareholders may end up paying taxes on dividends in their personal returns.
There are also B corps, which are for-profit businesses with an additional mission, usually charitable in scope. In this case, the business must also boost the well-being of the public in addition to turning a profit.