Congratulations!  At this point in the game, you have finally made up your mind and decided to travel down the well-traveled path of business. So now that you’ve gotten started, whats next? As a business owner, you face many decisions with starting, running, and growing your business. You face endless demands on both your time and your finances. Here are some key questions to consider before you throw down money and valuable time in jump-starting your business venture.

1) Which Business Entity works for your business?

Establishing a business sounds like a difficult task, but trust me, its actually pretty simple, once you get all your materials together. The task of beginning, completing, and mailing out the necessary paperwork shouldn’t exceed an hour at the most. Listed are four choices of business entities you can work with in the United States. Each has its own benefits and drawbacks, depending on your situation.

Common US Business Entity:

• LLC: A limited liability company (abbreviated L.L.C. or LLC) in the law of the vast majority of the states of the United States is a legal form of business company offering limited liability to its owners. Often incorrectly called a “limited liability corporation” (instead of company), it is a hybrid business entity having characteristics of both a corporation and a partnership. It is often more flexible, the owners have limited liability for the actions and debts of the company, and it is suitable for smaller companies with a single owner. The primary corporate characteristic is limited liability while the primary partnership characteristic is the availability of pass-through income taxation.
• C-Corp: A C corporation (or C corp.) is a corporation in the United States that, for Federal income tax purposes, is taxed under 26 U.S.C. § 11 and Subchapter C (26 U.S.C. § 301 et seq.) of Chapter 1 of the Internal Revenue Code. Most major companies (and many smaller companies) are treated as C corporations for Federal income tax purposes.
• S-Corp: An S corporation or S-corp, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code.In general, S Corporations do not pay any income taxes. Instead, the corporation’s income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.
• Sole Proprietorship: A sole proprietorship, or simply proprietorship is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. It is a “sole” proprietorship in the sense that the owner has no partners. A sole proprietorship essentially refers to a natural person (individual) doing business in his or her own name and in which there is only one owner. A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship does not have to be concerned with double taxation, as a corporate entity would have to.

Here is a chart that compares each entity formation. If you still don’t know which entity fits your business, consult with an accountant–don’t let a simple question hold you back from getting started. Ask a knowledgeable professional or feel free to leave a question here.

Questions to ask yourself when getting started:

1) Which Business Entity works for your business?

2) Do I need an accountant?

3) Do I need a logo, business card, or a website?

Stay current with new posts: You can subscribe to the RSS feed here.