Form of Business Organization

Starting your own business is a very stressful process filled with a lot of questions. One of the most frequently asked questions when starting a new business is about the form of business organization. So, which business form should you chose when starting your new company?

Sole Proprietorship

This is the most common form of business organization because it is very easy to form. Your net income from your business is combined with any income you may draw from other activities.

Partnership

A partnership can be two or more individuals who operate a business. A partnership is considered a pass-thru entity where income from the business is reported on the owner(s) personal income tax returns based on the amount of ownership they possess.

Corporation

Corporations are completely separate from its owners. Corporations have to abide by laws of the state they are formed in, and these laws vary. One benefit of being a corporation is any liability resulting form the business's actions do not affect the owning individual.

Subchapter (S) Corporation

In addition to not being at risk from the business's activities, a S Corporation also allows you to utilize pass-through taxation. When operating as an S Corporation, the owner(s) are employees of the company. In order to comply with the regulations of being an S Corporation, the owners draw a reasonable salary. At the end of the fiscal year, any excess made by the company can be passed through to its owner(s).

Limited Liability Companies (LLC)

LLC's are a very common business form for smaller companies, primarily due to the fact that owners of the company face little to no personal liability resulting from the company. In addition, being an LLC allows you to chose if you want your business to be taxed as sole proprietorship, partnership, or an S Corp.