In today’s litigious world, many business owners are looking for ways
to separate their personal assets from their business liabilities. This
requires taking a close look at the legal structure of your business and
understanding when that legal structure really makes a difference. You
must first understand the four basic forms of business legal structures
before you can make this important decision. Here’s an overview.
Sole Proprietorship
This is the simplest business form and the easiest to establish and
administrate. In the proprietorship, you are the business and the
business is you. Although there is little fanfare in setting up this
form (get
pertinent business licenses and file an assumed name certificate), you
are personally liable for all aspects of the business, financial and
legal. Creditors can hold you personally liable for any bills your
business is
unable to pay and you may be held liable for any legal actions against
the business.
General Partnership
Legally a general partnership is very similar to the sole proprietorship
except there is more than one
person who owns the business. In the general partnership all general
partners are liable for actions of the business. Meaning that you may be
held personally
liable for the actions of your partner—good, bad or ugly.
Limited Liability Company
In essence, the LLC gives you the general protection of a corporation
but you file your tax return as if you were a general partnership.
Corporation
There are two types of corporations, the “C” corp and the “S” corp. The
basic difference is how taxes are calculated. In the “S” corp, year-end
profits to stockholders are declared on personal income tax returns and
taxed based on your personal tax bracket. The “S” corp limits deductions
that can be taken by working stockholders and follows the same rules as
a sole
proprietorship. Deductions for medical insurance,
disability insurance cannot be deducted for stockholders, and some
pension programs are more restricted than the “C” corp. Basically, you
are requesting to be recognized as a corporation, but taxed as a sole
proprietor or partnership.
Choosing the best legal structure of your business is a serious
decision. Consult an accountant and
lawyer to determine what the best structure is for your individual
situation.
How AFS Benefits Can Help:
ProTalk
The small-business consultants at ProTalk can answer your
business-structure questions and more. Call 800-492-1016 and ask for
ProTalk, Monday through Friday, 8 a.m. to noon, CST. You’ll have your
answer within the next business day.
Business Filings Incorporated
Decide that incorporating is the best structure for your business? You
can receive discounts on incorporation services in all 50 states. For
more information visit www.afswebsite.org or call 800-492-1016.
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