Choosing the Best Entity for Your Business

Sole proprietorships are the most popular business entity in the U.S., with about 27 million businesses listed as sole proprietorships.

Deciding on the proper structure for a new business in your state– sole proprietor, partnership, limited liability company (LLC) or corporation – will depend on the type of products or services your business will provide, the ownership structure and the financial situation.  Consider these factors when deciding on a business ownership structure:

Complexity 

If you are starting your business without a lot of capital, you may wish to choose a simple structure, like a sole proprietorship or partnership.  More complex corporate structures like corporations and LLCs are more expensive to maintain, and require certain operational formalities that may not be needed if you have a simple business.

Risk 

If your business is inherently risky – for example, stock trading or construction – you will probably want a business structure that protects your personal assets from business claims, like a limited liability company (LLC) or corporation.

Taxes 

Taxes on business profits for partnerships, LLCs and sole proprietorships are all reported on the personal income tax returns of their owners, who must pay income taxes on all net profits.  Corporations pay corporate taxes at special rates on any profit at year-end.

Investment Capital 

With a corporate structure, you can sell shares in your business to raise investment capital.

If you are still uncertain which entity would be best for your company, give us a call at (714) 533-2600 and a CPA can help guide you in the right direction.

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