When you have your own business, it can be a challenge in determining what type of business entity to declare. There are so many different options out there. Which option is the best for you and your business? Would it be best to declare it as a sole proprietorship? Or perhaps a Limited Liability Company (LLC) would be better in representing your business. In this article, we will break down the options with which types of business entities there are to declare, so you can better determine what will best benefit you and your business.
- A sole proprietorship is a business where the owner is personally and solely liable for any legal responsibilities. This means that the business isn’t separate from the personal standings of the owner when it comes to any legal issues that may arise, such as a lawsuit.
- The business owner can claim their own business losses and profits on their annual personal tax returns.
- A sole proprietorship can be easy to form and operate for the business owner.
- No state filing is needed for a sole proprietorship.
- A partnership is similar to a sole proprietorship, but there are shared aspects of the business. They are also easy to form and operate.
- Each partner in the business can claim their profits and losses on their own personal tax returns.
- No state filing is needed for a partnership.
Limited Liability Companies (LLC)
- The business has an independent legal structure away from the personal legal liabilities of the owner(s). There is a separation between the assets of the business, and the owner.
- There aren’t any limitations in the number of owners, and there are no requirements to hold annual meetings.
- The tax filing is similar to that of a sole proprietorship or partnership, and can be done on the owner’s personal tax filing.
- An LLC is governed by operating agreements.
- Similar to an LLC, the business has an independent legal structure away from the personal legal liabilities of the owner(s). There is a separation between the personal assets and debts, and those of the business.
- Tax filing is done separate from the owner’s personal tax filings; it will be taxed on corporate profits, and shareholder dividends.
- A C corporation must have annual meetings, and keep records of them.
- Similar to LLC and C corporations, the business has an independent legal structure away from the personal legal liabilities of the owner(s). There is a separation between the personal assets or debts, and those of the business.
- The business owners can report their profits and losses on their personal tax filing.
- There is a limitation to the number of shareholders in the business, and the shareholders must be U.S. citizens and residents.
- An S corporation must have annual meetings, and keep records of them.
Once you’ve determined which entity best represents your business and potential goals, it’s time to select which entity to declare. It could very much be beneficial for the business owner to have legal advisement for this process. Having legal help will free you of other obligations which will give you more time to focus on making your business successful. Contact us today if you have any questions about your business legal matters, or if you have questions about what business entity should declare.