How Your Corporate Structure Impacts Your Business
How you structure your small business is an important consideration. Here is a discussion of the four most common business structures to help you choose the right one for your enterprise. You can read about all of these corporate structures in greater detail here.
Sole Proprietorship – The simplest form of corporate structure if you are the only owner and operator of your business.
• Business income/expenses reported on 1040 Form, Schedule C.
• Self-employment (SE) tax of 15.3 percent on ordinary net income from sales of products/services, commissions, or short-term real estate income.
• Owner has personal responsibility for business liabilities.
Limited Liability Corporation (LLC) – Good choice for many businesses although it doesn’t save on taxes in any way.
• Personal liability protection for an operational business and if you own rental property. Protection extends to each individual partner.
• Reservation of a business name and ability to create a legal brand.
• Option to eventually convert to an S Corporation and limit SE taxes.
• Liable for SE taxes on ordinary net income.
• Many states have high filing fees and/or taxes and additional operational costs.
• Liability protection.
• Significant tax savings, depending on the situation.
• Ability to build business credit.
C Corporation – Most Fortune 500 companies are set up as C corporations because they are enabled to issue shares and go public. However, a C Corporation is not the best choice for a small business owner.
• No important tax advantages for a small business.
• Complicated to set up and maintain.
Funding for Your Small Business
Whichever corporate structure you choose, at some point your small business will need funding. Just as the right corporate structure is important for the success of your enterprise, so is the right type of financing. Artos Capital specializes in financing small businesses. Contact us to see how we can help you.