Structuring the way in which your business will be run and organized can be a daunting task. Trying to choose between registering as a sole proprietorship, general partnership, corporation, or limited liability company? Let Oliver & Cheek, PLLC guide you in these types of decisions.
Organizing as a Sole Proprietorship
A Sole Proprietorship is a business that has a single owner who pays personal income tax on all of the profits earned for the business. Sole Proprietorships are common among small business owners who often don’t have to distinguish a name difference between themselves and their business, and is the simplest form of business to begin. A disadvantage of a Sole Proprietorship is that it is hard to obtain loans and other forms of equity. Typically as a sole proprietorship grows it will reorganize as an LLC or Corporation. For more information on organizing as an LLC or a Corporation see our post here.
Organizing as a General Partnership
A General Partnership is an agreement between two or more people to share in all liabilities, profits and other assets in a business. There should also be a legal document that proves the partnership exists, such as a formal partnership agreement. In some cases a General Partnership agreement can be made orally and without a legal document however. Setting up a General Partnership is easier and requires less time and paperwork than setting up a LLC or Corporation which makes them a frequent choice for small businesses.
Organizing as a Corporation
Within a Corporation the most common forms of organization are either a S corporation or a C corporation. What these versions have in common is that a corporation is autonomous from the owners. As in it can act on its own in buying or selling property, legal matters such as suing or being sued as well as ownership can change by buying or selling stocks.
S Corporations are better for those who offer a public service as it offers the same protection and structure of a corporation yet has the same tax benefits as a LLC. The business pays no tax on the corporate level, however individuals and owners pay taxes on profits.
C Corporations are taxed directly by the government as well as owners pay taxes on profits made. Owners of the C corp still receive limited liability protection that protects personal assets separate from the business. A benefit of organizing as a C corp is that payroll and benefits among other things can be deducted from taxes.
Organizing as a LLC
Unlike a corporation, LLC’s don’t offer shares in their business. If an LLC has multiple owners they all share a percentage of the business. They also have the benefit of being flexible in how they are taxed while offering the most levels of protection between business and private assets. The LLC is either taxed through the individual profits that the owner or owners make, or as either a S or C corporation.
Organizing as a Non-profit
Creating a non-profit organization makes any donations or revenue accumulated considered tax-exempt by the IRS. However, your organization must use those funds to support religious, scientific, charitable, educational, literary, public safety or cruelty prevention causes, and give back to improve the community in some way. The staff of a non-profit organization typically has some paid members and other unpaid volunteers, and ultimately relies on the community it serves to continue its operation, as well as good management.
In the end it comes down to what makes the most sense for your business. With any of the models you choose comes a variety of pros and cons. We here at Oliver & Cheek understand how to help you make the right choice and minimize the cons.Contact us today to set up a consultation.
At Oliver & Cheek business law is one of our specialties and we are here to help you through all of your business needs, organization and beyond. For more information or to schedule a consultation, please contact Oliver & Cheek, PLLC by calling (252) 633-1930 or visiting www.olivercheek.com.