What if I told you that one of the most important decisions you’ll make about your new business isn’t about your product, your business plan or even how you plan to make money? One of the most important decisions you’ll ever make is choosing which entity type is right for your new business. There are several different types of business entities and choosing the best one can be a complex process. That being said, it’s important to discuss your options with your business adviser. Your entity type has a critical impact on two of the most important factors of any business: liability protection and income taxation.
Liability Protection
Liability protection can protect your personal assets in the event that the worst happens, and your business can’t meet its financial obligations. Having the right liability protection built into your business can be the difference between creditors going after your business assets or being able to go after your personal assets, such as your home. Different types of business entities have different liability protections built into them through state law.
Tax Implications
Many business owners aren’t aware of the additional taxes and filing requirements that come with owning a business. Which entity type you choose can impact the following tax issues, among others:
- What rate do you pay tax at?
- Does the entity pay taxes or do the owners pay taxes directly on their returns?
- Will your income be double taxed?
- What annual fees will I have to pay?
Types Of Business Entities
These are some of the most common types of business entities that businesses use. In the following links, we will be discussing the pros and cons of each entity type as well as which types of business models they benefit the most.
C-Corporation
S-Corporation
General Partnership
LP (Limited Partnership)
LLC (Limited Liability Company)
Discuss these options with a tax expert before making any big decisions and keep in mind that it can be very difficult to change your entity type later on. Call me if you need help deciding which type is best for you. I’ve helped many clients and friends through the process and analysis to find the best fit.
By David Olson,
CPA, Manager
