types of businesses
Starting a new business is an exciting, rewarding, and somewhat stressful endeavor. There’s a long list of decisions to be made early on, but one of the most important is selecting the right business structure. The type of business entity you select can impact everything from how to establish owner compensation to how much you’ll pay in taxes.
Sole Proprietorship DBA
Someone who owns an unincorporated business by themselves.
Advantages
Minimal paperwork and low set-up costs are two major benefits of having a sole proprietorship. In addition, there is the ease of maintaining it. In fact, according to the SBA, it’s the simplest and least expensive business type you can establish
Taxes: You don’t need to separate taxes for your business. Any profit you make is simply treated as your own income.
Maintenance: A sole proprietorship is easier to start and maintain than a registered business. With minimal legal costs and no ongoing state requirements, you can simply run your business. This is the case even if you’re using a fictitious name, also called a DBA (doing business as).
Control: The sole proprietor has complete control and decision-making power over the business. Without any partners, you are the sole owner of the business, and can therefore run it as you choose.
Taxes: You don’t need to separate taxes for your business. Any profit you make is simply treated as your own income.
Maintenance: A sole proprietorship is easier to start and maintain than a registered business. With minimal legal costs and no ongoing state requirements, you can simply run your business. This is the case even if you’re using a fictitious name, also called a DBA (doing business as).
Control: The sole proprietor has complete control and decision-making power over the business. Without any partners, you are the sole owner of the business, and can therefore run it as you choose.
S corporation
Corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
Advantages
Protected assets. An S corporation protects the personal assets of its shareholders. Absent an express personal guarantee, a shareholder is not personally responsible for the business debts and liabilities.
Pass-through taxation. An S corporation does not pay federal taxes at the corporate level. (Most — but not all — states follow the federal rules). Any business income or loss is "passed through" to shareholders who report it on their personal income tax returns.
Tax-favorable characterization of income. S corporation shareholders can be employees of the business and draw salaries as employees. They can also receive dividends from the corporation, as well as other distributions that are tax-free to the extent of their investment in the corporation.
Straightforward transfer of ownership. Interests in an S corporation can be freely transferred without triggering adverse tax consequences.
Pass-through taxation. An S corporation does not pay federal taxes at the corporate level. (Most — but not all — states follow the federal rules). Any business income or loss is "passed through" to shareholders who report it on their personal income tax returns.
Tax-favorable characterization of income. S corporation shareholders can be employees of the business and draw salaries as employees. They can also receive dividends from the corporation, as well as other distributions that are tax-free to the extent of their investment in the corporation.
Straightforward transfer of ownership. Interests in an S corporation can be freely transferred without triggering adverse tax consequences.
Limited Liability Company or LLC
C corporation
A limited liability company (LLC) is a popular choice among small business owners for the liability protection, management flexibility, and tax advantages this form of business entity often provides. Benefits of forming an LLC
A legal entity that is separate and distinct from its owners.
Advantages
Limited liability: Members (which is what the owners of an LLC are called) are shielded from personal liability for acts of the LLC and its other members.
Flexible membership: Members can be individuals, partnerships, trusts, or corporations, and there is no limit on the number of members.
Management structure: Members can manage the LLC or elect a management group to do so.
Pass-through taxation: LLCs typically do not pay taxes at the business entity level. Any business income or loss is "passed-through" to owners and reported on their personal income tax returns. Any tax due is paid at the individual level.
Heightened credibility: Starting an LLC may help a new business establish credibility more so than if the business is operated as a sole proprietorship.
Flexible membership: Members can be individuals, partnerships, trusts, or corporations, and there is no limit on the number of members.
Management structure: Members can manage the LLC or elect a management group to do so.
Pass-through taxation: LLCs typically do not pay taxes at the business entity level. Any business income or loss is "passed-through" to owners and reported on their personal income tax returns. Any tax due is paid at the individual level.
Heightened credibility: Starting an LLC may help a new business establish credibility more so than if the business is operated as a sole proprietorship.
Advantages
Limited liability protection. Corporations provide limited liability protection to owners — known as shareholders. This means that owners are not typically personally responsible for business debts and liabilities.
Tax advantages. C corporations may also offer greater tax advantages because of an expanded ability to deduct employee benefits, which are most often used by growing small businesses. There can also be tax savings if the corporate tax rates are lower than the personal rates and/or the corporations are not making distributions of income to shareholders.
Unlimited owners — C corps can have an unlimited number of shareholders.
Easy transfer of ownership — Ownership is easily transferable through the sale of stock.
Unlimited life — When a corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
Tax advantages. C corporations may also offer greater tax advantages because of an expanded ability to deduct employee benefits, which are most often used by growing small businesses. There can also be tax savings if the corporate tax rates are lower than the personal rates and/or the corporations are not making distributions of income to shareholders.
Unlimited owners — C corps can have an unlimited number of shareholders.
Easy transfer of ownership — Ownership is easily transferable through the sale of stock.
Unlimited life — When a corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
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5835 Executive Center Dr Suite 101 C, Charlotte, NC 28212