In planning a new business, you have so many tasks to complete and challenges to overcome. Among them is choosing the right business entity. Many important factors come into play when deciding on the right business entity. And some of those factors include the amount of taxes you will pay, control of the company, asset protection and personal liability.
The choices you make will have a definite effect on the future and success of your company. In jockeying for position in the business world, you understand that risk always comes with forming a company. And you clearly understand that selecting the right business entity will provide your company with the direction it needs while guiding you toward financial goals and success.
Minimize personal liability, gain tax advantages
When considering a business entity for your company, do your homework. Here are some of the options and the advantages that they bring:
- Limited liability company (LLC): If the business is a small company with a sole proprietor, this may be the way to go. Besides the tax advantages, an LLC provides certain protections for an owner’s personal assets if the LLC experiences significant debt or has a legal judgment against it.
- Limited liability partnership (LLP): These involve partnerships with others, providing complementary strengths to the fold while also sharing potential risks that come with a business. The liabilities of each partner are limited to the dollar amount invested in the company.
- Professional corporation: There are significant tax advantages and liability protections that come with this business entity. An owner is not personally liable should the company file for bankruptcy or face costly litigation matters. However, the company’s assets are taken to pay creditors.
- S-corporation: This entity provides a special tax status to the corporations or LLCs. While business operations do not change, the tax burden shifts from the company to the owners.
- C-corporation: Such an entity includes a board of directors and remains independent from its owners who do not have personal tax liabilities. Owners also are not personally liable for the company’s debts and losses as their only financial risk is the investments they have put into the company.
It pays to know what direction you want to take your business. By making the right decision on a business entity, you can gain specific tax advantages, minimize liabilities en route to potential success.