What Type of Business Are You?

We have all heard of terms like Corporation, Partnerships, sole-proprietorships, and the ever-popular Limited Liability Company (LLC). But what exactly are the differences between these, and why should you, as current or future business owner, care?

Below is a brief summation of each type of entity you can form your business under. Choice of entity is an important decision for each business. Entity formation affects taxes, liability, and overall general business operations. Knowing which type of entity is best for you and your business is crucial to your success and should be required due diligence.

The proper entity may save you or your business someday!

The high-level differences between the entities concern taxes and liability. Both, of course, being very important! Taxes, obviously, being how much money the government can take. Liability, depending on your business structure, is whether your personal assets and money can be reached in the event your business is sued.

C-Corporation:

• A completely new entity
• Ownership derived from shares
• Limited Liability
• The entity is taxed itself, along with owners (viewed as double taxation)

Partnerships:

• A “pass-through entity,” meaning unlike the C-Corporation, no entity level taxation (yes!)
• Profits and losses “pass through” to the partners per their distributive share
• NO limited liability! Partners may be personally on the hook

S-Corporation:

• Limited number of shareholders allowed (100)
• Pass-through entity like a partnership
• Limited liability like a corporation

Limited Liability Company:

• Pass-through entity
• Limited liability – both from entity to owners and owners to entity
• No ownership limit!

Whether you are already an existing business and are ready to take the next step, or a new business looking to make that first step, we are here to help. For similiar blog posts, check our our Deal Maker blog and be sure to contact your Sioux City Law Firm, Omaha Law Firm, or Sioux Falls Law Firm today!