Be Sure That Your Business Is Under The Right Business Structure

If you’re running a business for some time now or if you just started a new one, you should make sure that your business is set up in the best structure possible. Many companies out there begin as a partnership or a sole proprietorship without knowing that this may not be the best and safest business structure for them.

What Can Business Owners Do About the Business Structure?

When it comes to the legal structure of a business, there are several, and we can choose any of them.

Sole Proprietorship

This is the type of business that has only one owner, and the owner is financially responsible for everything within the company, and he also makes all the decisions. All profit and loss go from company to the owner, who will report them on his/her personal income tax return. All of this means that all the liability of the business falls to the owner.

Partnership

A partnership is more or less very similar to a sole proprietorship, but it has two owners that share both profit and loss, as well as liability and control.

LLC (Limited Liability Company)

An LLC passes profits and losses through the owners, but it also protects the owners from personal responsibility for liability. In this case, the responsible party is the company, not owners. All of this also means that all of the individual assets from LLC members or owners are protected.

Corporation

A corporation belongs to one of the most complex business structure groups. A corporation is an entirely separate legal entity, and owners are shareholders. All the profits and losses will remain within the company, along with liability. A corporation is the most complicated and expensive type of business to set up, and it requires a lot of things regarding paperwork, etc.

These are the questions you should ask yourself to conclude if a change in the legal structure of your business could benefit you.

Are Things Better Now or They Were Better When You Started Your Business?

In case you have more assets now than you had when you started your business, these assets can be at risk in case of a lawsuit. We know that the business structure of sole proprietorship and partnership passes all liability through to their owners. This can lead to endangering your personal assets in case someone sues your business.

Which Kind of Work Does Your Company Do?

In case your company’s line of work is a risky one (work with hazardous materials, construction, etc.), you need to think about the business types. That will ensure that all the liability remains with the company like a corporation or an LLC. Also, you should know that there’s no reason to change your business structure if you have business insurance or if you can obtain one. Insurance will protect your business and cover the risk.

Do You Plan on Selling Stocks?

If you plan to sell stocks in your company, you must change your company structure to a corporation since this will allow you to issue and market shares. When your company gets the legal rights to issue stocks, you can offer stock options to your employees as an incentive and a benefit.

How Much Is Profitable Your Company?

If your company has profitable results, you can use tax benefits that exist for different company structure types. These particular structure types can help you with the reduction of your tax liability. In case you decide to change the legal structure of your business to a corporation, you can hold some corporation profits. These profits will have a lower corporate tax rate. Another essential thing to know is that corporations have double taxes. Corporations need to pay taxes on earnings, while stockholders must pay taxes on dividends they receive.

Making a choice of company structure for your business is a vital decision that will impact various aspects of your business. Before you decide which structure to implement to your business, be sure to comb carefully through all the options. For more help about choosing the right business structure for your company, contact us via email at [email protected] or via phone number (305) 921-0440.