Which Corporate Structure Will Work Best for You?

the rascon cpa firm, accountant, accounting firm, cpa services, IRS and State Audit Representation, The woodlands, texasOne of the most crucial decisions you will have to make as a business owner when setting up a new business, or reorganizing an existing one, is what structure to use. The choices range from a simple sole proprietorship, to an S Corp flow-through, to a C Corporation structure more commonly used by large companies.

How you structure your company will determine very important issues such as legal liability, tax treatment of the net income earned, and the kinds of shareholders you can have.

Your goals and estate planning for the company will determine the kind of legal liability you will need, and the current tax laws will determine what type of corporate structure to have to ease the burden on your tax liability. Because both of these issues will not always align, it is extremely important to consult with your attorney as well as your Certified Public Accountant (CPA) to gain an overall perspective of your options.

In a brief overview, a Sole Proprietorship is the most basic type of business to establish. You are the sole owner of the company and are responsible for its assets and liabilities. If your company is involved in a civil lawsuit, there is no limited liability. This means it is not just the company’s assets that are subject to the lawsuit but also your personal assets.

Limited Liability Companies (LLC) are designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. This is the most commonly used structure by Entrepreneur small business owners.

C Corporations also provide limited liability but are more complex and are generally used by larger established the rascon cpa firm, accounting firm, cpa services, accountant, payroll services, business consultingcompanies with complex structures and multiple employees. They are subject to double taxation when the company pays dividends to its shareholders.

S Corporations are like a C Corporation except your income is taxed on your personal tax return. The income earned in this structure is not subject to double taxation when cash distributions are made to its shareholders. This structure is also very commonly used by Entrepreneur small business owners.

In summary, many experts say LLCs represent the top option for most small businesses. But we recommend that you consult with an attorney and CPA about the nature of your business, the way you will operate it, who will own it, what your future plans are, and your goals over the next three to five years. Having a healthy dialogue about all these issues will certainly help you make a sound decision.