One of the first decisions a business owner faces is choosing the best business entity for their organization. This is a crucial decision because it has far-reaching legal and tax consequences. At the starting point, you may be wondering, how do I choose between an LLC and a Corporation? What about a sole-proprietorship? Do I need to incorporate a business for a one-time project?
- Liability risk
- Possibility of getting income
- Getting funding
- Ease of maintenance
- The State of incorporation.
What types of business entities exist?
A corporation is a legal entity separate and distinct from its owners. Corporations are granted most of the rights and responsibilities that individuals possess. Corporations can enter into agreements, loan and borrow money, sue and be sued, hire employees or independent contractors, own assets, and pay taxes. The corporation can be organized as C-Corps or S-Corps.
C-Corporations are subject to double taxation. This means that they pay taxes on their income and shareholders pay taxes when dividends are paid. S-Corporations are special tax treatment corporations that are not subject to double taxation. S-corporations are also known as pass-through entities. This means that taxes are only paid when a shareholder receives dividends. To be treated as an S-Corporations an entity must make an express request with the New York Tax Department.
Limited Liability Companies
An LLC is a form of business organization formed by one or more persons who have limited liability for the contractual obligations and other liabilities of the business. A Limited Liability Company is a hybrid form that combines the limited liability benefit of a corporation with the operative flexibilities of a partnership.
A partnership is a form of a business organization that requires no formal act and no express agreement. According to the law, there is a partnership where two or persons carry business as co-owners sharing costs and benefits. When it comes to taking on business ideas or projects with another it is a best practice to put the terms in writing and to be very clear about intent, costs, or benefits, otherwise, partners can be liable beyond their expectations or they can be involved a venture unwanted or unanticipated.
Limited partnerships or LLP are a form of business organization where there is a partner fully responsible for the business and other partners whose liability and responsibility is limited. An LLP as an organized business entity must be created by filing a Certificate with the New York Department of State.
The Law Office of Giselle Ayala Mateus Can Help You!
The election of the business structure that fits the needs of your business is one of the most important decisions you will make as a new business owner or entrepreneur. For this purpose, the Law Office of Giselle Ayala Mateus can help you, guide you in regard to the ups and downs of each option, give enough you enough elements to make a smart decision. To begin, schedule now, a free consultation!