Since 1982, the number of small businesses in the United States has increased by nearly 50 percent. If you are tired of working a 9 to 5 job and want to take control of your financial destiny, then starting your own business is a great idea.
Before starting a business of your own, you will need to do things like market research and secure the right amount of funding to get your venture going.
Another important decision you need to make regarding your business is what structure to use. Figuring out whether you want your business to be a Georgia LLC or an S-corporation is a lot harder than it seems.
Consider the following tips when attempting to choose the best business structure for your new business.
Getting to Know Your Business Structure Options
For most newcomers to the world of business ownership, getting information on the types of business structures out there is a must. There are many different business structures you can choose from like:
- Sole Proprietorship: One of the simplest business structures out there is the sole proprietorship. This classification signifies that the business in question is unincorporated and owned by one person. If you use this structure for your business, you will need to report all business profits on your individual tax return.
- Limited Liability Company: Among the most popular business structures out there is the limited liability company or LLC for short. This hybrid business structure helps to limit your personal liability in the event of a business failure or a lawsuit.
- C Corporation: A C corporation generally has various classes of stock and an unlimited number of shareholders. The profits for this business structure will be taxed at both the business level and the individual level. This business structure also limits the liability that shareholders have regarding the debts the company acquires.
Now that you know about the various business structures available to you, we will discuss how to choose the best fit.
How Much Protection Do You Want Your Personal Assets to Have?
One of the main things you need to consider when trying to choose the best business structure is how much protection you want for your personal assets. In the world of small business, the threat of lawsuits is a very real concern. If you choose to use a sole proprietorship as your business structure of choice, your personal assets can be seized in the event that you lose a business lawsuit.
If you want to protect your assets from seizure, then using the limited liability company business structure is the best option.
Another thing to consider is hiring a professional for your finances. You wouldn’t gamble on your personal finances, so make sure you are not doing that with your business. Some fractional CFO’s offer pro forma services which will give you financial projections so you have an accurate idea of what you are getting yourself into.
Your Business Structure Dictates How Your Business Profits are Taxed
Another important consideration to make before choosing a business structure is how you want your business profits to be taxed. When choosing a sole proprietorship, partnership or S corporation business structures, the profits your company makes will need to be filed on personal tax returns.
A C corporation is viewed as a separate entity, which means that the profits you make will be taxed at the corporate level. If you pay out dividends to your shareholders through your C corporation, they will also need to file this income on their individual taxes.
If you need some guidance when making this important decision, consulting with a tax attorney is a great idea. They can give you some suggestions regarding which business structure is the best fit for your needs.