Govdocfiling Explains The Top 4 Business Structures

You want to start a business, but how can you be sure that you’re forming the right entity? With so many different options from which to choose, it’s imperative that you understand each one in detail before you begin. Today, will show you the ins and outs of the top four business structures and how they can impact your new enterprise.

#1 Sole Proprietorship

If you’re going into business for yourself, then it might be easiest to choose this entity type. The way it works is that the company is tied to your social security number (although you can obtain an employer ID number instead), making it easier to file taxes.

The benefit of a sole proprietorship is that it’s easy to set up, but the downside is that you can’t hire employees or seek investment from any partners. If you do get an EIN, you may be able to open a business bank account though.

#2 Partnership

If you decide to form a company with one or more partners, a partnership is a great idea. With this entity, you are all tied to the business based on your investment. It could be a 50/50 split, or it could be different depending on who is fronting the capital.

Partnerships are great because they are simple to create, but they don’t limit the liability of each partner. Thus, if the business gets into debt, you are both liable for it.

#3 LLC

For many small businesses, filing a LLC tax form is the way to go. LLCs are excellent because they allow you to create a separate entity so that you’re not held accountable for business debts and expenses. However, LLCs are tied to the owners of the company, and they are not recognized federally.

#4 Corporation

If you want the most stability in your enterprise, then form a corporation. You can either make it a C or S-corp, depending on how you want your income to be taxed. C-corps have double taxation while S-corps are pass-through (like a sole proprietorship). Corporations are good because they aren’t tied to any one person, so you can scale up or down without any issues.

Overall, forming a business requires a lot of research and hard work, so be sure to weigh the pros and cons of each entity structure to find the right one for you.