SMALL BUSINESS

Choose The Best Business Structures

5 common business structures

Margit Willems, Owner

22 October 2016

How to choose the best business structure when starting a business can be an overwhelming task for many  .

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The 5 Common Business Structures

In review, the five most common business structures are:

5 common business structures

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Sole Proprietorship

Advantages

The pros of a sole proprietorship are:

Easiest to form

It is the easiest and least expensive form to organize.

Least expensive to form

It is the easiest and least expensive form to organize.

Owner has complete control

It is the easiest and least expensive form to organize.

Easy tax preparation

It is the easiest and least expensive form to organize.

Lowest tax rates

It is the easiest and least expensive form to organize.

Profits flow-through to owner’s personal tax return.

It is the easiest and least expensive form to organize.

Easy to dissolve

It is the easiest and least expensive form to organize.

Disadvantages

The cons of a sole proprietorship are:

Unlimited personal liability
Personal assets at risk
Hard to raise money
Responsible for successes and failures
Hard to attract talent
Benefits only partially adjustment to income

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Partnership

Advantages

The pros of a partnership are:

Generally easy to establish

It is the easiest and least expensive form to organize.

Relatively inexpensive

It is the easiest and least expensive form to organize.

Shared financial commitment

It is the easiest and least expensive form to organize.

Ability to raise funds may increase

It is the easiest and least expensive form to organize.

Complementary skills among partners

It is the easiest and least expensive form to organize.

Attract better talent through partnership incentives

It is the easiest and least expensive form to organize.

Disadvantages

The cons of a partnership are:

Joint and Individual Liability
Disagreements among partners
Profits must be shared with partners
Unequal contribution can cause discord among partners.
May have a limited life
Some employee benefits not deductible from income on tax returns.

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Limited Liability Company

Advantages

The pros of a limited liability company (LLC) are:

Limited liability of members
Flexible check-the-box taxation e.g., sole owner
Pass-through taxation; no double taxation
Easier to Raise Money
Ease of Ownership Transfer
Flexible management structure
Enhanced credibility

Disadvantages

The cons of a limited liability company are:

Cost of Set Up
requires formal organization
periodic filings with the state
Lack of uniformity by state
Limited growth potential
Self-employment tax of members
businesses eligible test

Advantages

The pros of a S corporation are:

Limited liability
No double taxation of income
Pass-through taxation
Investment opportunities
Perpetual existence
Once-a-year tax filing requirement

Disadvantages

The cons of a S corporation are:

extra startup and termination costs
Ownership Restrictions
Extra Tax Accounting
Closer IRS scrutiny
U.S. citizens and permanent residents only

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Corporation

Advantages

The pros of a corporation are:

LIMITED LIABILITY
RAISING CAPITAL
Company continuity of existance
Fringe benefits
Attracting top-notch Talent
Enhanced credibility

Disadvantages

The cons of a corporation are:

Expensive to start
Government regulations and formalities
No deduction of corporate losses
Additional Paperwork

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