You are about to make a very big decision and it will be one of the most exciting adventures that you will participate in. In response to your request, there are three business structure options to choose from when starting a business. These structures consist of sole proprietorship, partnership, and corporation. To assist you in selecting the best structure for your business, I would like to discuss the benefits and drawbacks, as well as legal and tax implications of each structure.
Sole Proprietorship A sole proprietorship is owned and operated by a single owner. It is the easiest, most inexpensive, and least regulated structure to organize. The owner receives all the profits and has full business authority (Pairing, Kiddies, & Bates, 2012). On the downside, the sole proprietor is held personally liable for everything; the debt and obligation of the business. Also, the source of capital is restricted to the owner’s personal funds including the loan the owner can acquire.
For tax implications, the sole proprietor benefits from flow-through taxation wherein the earnings and losses of the company are filed through the proprietors individual tax returns (Chessman, 2013). Partnership A partnership is a structure formed by two or more co-owners. General partnership enjoys the same benefits and drawbacks as a sole proprietorship. The principal advantage of a partnership is that it has more access to funds due to more than one partner funding the operations. The disadvantages are unlimited personal liability and legal responsibility for the action of partners (Chessman, 2013).
The entity must file an annual information return to port business earnings and losses, but it is not required to pay federal taxes (Partnership, 2014). Corporation The corporation is the most difficult and expensive structure to establish. The corporate structure is advantageous because of the ability to general capital through shareholders and limited liability protection it provides. However, a major disadvantage is that corporation are costly and time-consuming ventures to start and operate (Corporation, 2014). Corporations requires start-up, operating and tax cost.
In terms of corporate taxes they are required to pay deader, state, and in some cases local taxes. Also, in some cases corporations are doubled taxed. First, when the company makes a profit and again when dividends are paid to shareholders on their personal tax returns (Corporation, 2014). In closing, I would like to thank you for your time and patience. I hope you find the information that have provided to you helpful. I recommend that for your business you should look at either sole proprietor or partnership. They are the two easiest business structure to start a new small business.
Please do not estate to contact me should you have any concerns or would like to discuss this matter further.