Corporations
Before you establish a business, you must decide what format you want that business to take. There are four basic forms of for-profit businesses in the United States, and each of them has advantages and disadvantages. Your decision can have important effects on your ability to separate your own personal assets from business assets, your ability to raise capital, your taxes and the disposition or transfer of the company when it is bought or sold.
Our highly trained and multilingual team are here to explain and guide you through all information needed, so you can take your first steps into this new journey of entrepreneurship.
Here are some tips about business structures in the United States:
Sole Proprietorships for One-Owner Businesses
Sole proprietorship is the simplest organizational structure available for businesses. According to the Internal Revenue Service (IRS), it is the most common form of business in the U.S. Businesses structured as a sole proprietorship allows the owner(s) to have total control over company operations. Businesses that typically form sole proprietorships are home-based businesses, shop or retail businesses and one-person consulting firms. Owners of sole proprietor businesses are responsible for their own record keeping and paying the IRS in the form of self-employment taxes.
The major disadvantage of the sole proprietorship format is personal liability. You have unlimited liability for all lawsuits against your business.
Corporations
The most complex organizational structure for businesses is the corporation. This type of business structure separates the liabilities and obligations incurred by company operations from being the responsibility of the owners. Corporations are regulated by the laws of the state they are set up in. Unlike sole proprietor and partnership businesses, corporations are taxed as separate entities at corporate tax rates.
There are two common types of corporation structures: Subchapter C and S. The different between the two subchapters stem from different tax rules. Ordinary corporations are considered Subchapter C corporations. Subchapter S corporations, unlike Subchapter C companies, can pass income and losses onto their shareholders to avoid paying federal income taxes. This prevents double taxation of corporation profits.
Limited Liability Company
One of the newest organizational structures for businesses is limited liability company (LLC).
LLCs can provide owners, who are commonly referred to members under this structure, the protection from liability and other obligations similar to a corporation. Limited liability companies can also be set up and managed like partnerships. The taxation of LLCs also depends on its structure. Due to its limited protection, some companies such as banks and insurance companies are restricted from being LLCs.
