Do you know if your business structure is right for your company? Have you ever considered switching your business structure? There are many different types of business structures:
- Sole Proprietorship
- Partnership (General/Limited)
- Limited Liability Company
- Corporation (S-Corporation/C-Corporation)
In today’s society it is very important to understand the similarities and differences of business structures. As a business owner you want to choose the best structure, so your company can continue to grow and succeed at the rate you want. If you are set up in the wrong business structure this could be deterring your growth, in your business and personal lives. From experience and through research, CLM Advisors has helped many of our clients determine which structure is best for them. Many business owners struggle to determine what type of structure their company should run as and CLM Advisors is here to help.
Did you know in the U.S. there are 23 million Sole Proprietorship? A Sole Proprietorship is owned and operated by one person and there is no legal distinction between the company and that person. Being a Sole Proprietorship means you do not have to separate your personal and business expenses. When it comes to taxes, the business’ income or losses are to be reported on your personal income tax return. All of this makes owning a Sole Proprietorship seem extremely easy and flexible. The least attractive aspect of owning a Sole Proprietorship is that you have zero liability protection. This is very similar to a Partnership, however a Partnership is a formal arrangement between two or more parties. There are two types of Partnerships:
- General – where all partners share equal liability.
- Limited – where one or more of the partners is liable only to the extent of the amount of money that the partner has invested.
Next, is an LLC, or Limited Liability Company which is a state registered company that provides limited liability to a company’s owners. An LLC combines the pass-through taxation of a Sole Proprietorship and a Partnership. If a company is considered an LLC it is subject to state laws and you will need to separate your personal and business expenses. The IRS automatically taxes single-member LLC’s as Sole Proprietorship and multi-member LLC’s as Partnerships. However, as an LLC you can chose to be taxed as a C or an S Corporation. So I imagine your next question would be, “What is a C or an S Corp?”. A C-Corp is an independent entity that is owned by its shareholders. Its profits and losses are taxed separately from its owners. There are 1.7 million C-Corps in the U.S. On the other hand, an S-Corp is a closely held corporation. Its profits or losses are passed on to the shareholders and reported on their personal tax returns. There are 7.4 million S-Corps in the U.S.
Over the years, we have come across many businesses who were struggling because of the way they set up their business structure. We have helped and advised many of our clients to convert to a new business structure to aid tax relief and improve the overall state of their personal lives and businesses.
en.wikipedia.org. Wikipedia, The Free Encyclopedia.