Corporate Structure: Actionable Tips on Organizing Your Company
Starting a new business venture can be an exciting time, but there are also a lot of decisions to be made. The legal structure of your company will have an impact on several areas of business operation, so choosing the right structure should not be taken lightly. There are many things to consider first, like whether or not you have a partner, where your business is located, your liability exposure, your earnings and tax goals. There are several different choices for corporate structure, so here are some tips for each of them.
Sole proprietorship is one of the simplest structures to form, and can be ideal for individuals running a small business that don’t want to deal with extra tax returns and business bank accounts. The self-employment tax for these individuals can be quite high, and as the only person running the business, that individual could be exposed to liability risks.
If you’re worried about liability or have a business partner, an LLC might be the better option. Though you might not save on taxes, you’ll have the benefit of brand development under a legal business name and better protection from lawsuits. By establishing an LLC, you can begin building your business credit, which can be useful if you need to rent equipment or get a loan for growth later on.
If legal protection or saving on your taxes is a big concern, an S Corp may be the right structure. If you give yourself a salary, you would not have to pay self-employment tax on your portion of income. This corporate structure can be appealing because S Corps can have up to 100 shareholders, and those shareholders will be exempt from corporate taxes. Many small businesses can benefit from this type of structure, with excellent tax and legal advantages.
C Corporations tend to be larger companies with different needs than those of small businesses, so you likely wouldn’t choose this structure, especially if you’re just starting out. There are some tax breaks to consider, but not everyone can use certain write-offs or will benefit from lower tax rates. There are many specific elements that make this structure worthwhile, and it might be worth seeking several opinions before you do.
Corporate structure can influence a number of outcomes for your business, making it one of the most important decisions during the initial stages. By assessing your personal and business goals with some expert input, you can choose the best structure for your company’s needs.