Setting up a Business

Posted on October 25, 2018 by G & R Tax Services

Choosing the right legal entity for conducting business requires the consideration of several factors. The following table has basic information on the different types of legal entities. Be sure to consult your G & R Tax Services, Inc. representative to determine the best legal structure for your business.

Control Liability Taxes Administration

Sole

Proprietorship Sole Proprietor has total control of the business operations and complete share of profits All of Sole Proprietor’s personal and business assets are at risk Taxes reported on Sole Proprietor’s tax forms. Must pay self-employment taxes No administrative requirements other than obtaining business license and registering trade name

General

Partnership Management and profits shared between partners per the terms of the Partnership Agreement General Partners are generally liable for obligations of General Partnership and damages incurred by other General Partners “Pass-Through” Entity. Each general partner is taxed directly upon his/her share of profits. No formal administrative requirements other than obtaining proper licenses and permits

Limited

Partnership General and Limited partners share in the control and profits of the partnership per the terms of the Partnership Agreement Limited partners: not personally obligated for liabilities of partnership

General partners: same as partners in a General Partnership

Pass-Through Entity. Each partner is taxed directly upon his/her share of profits Registration requirements similar to Corporations, but no burdensome record-keeping or tax filing requirements

Corporation Shareholders: ownership rights & elect directors

Directors: govern general affairs & appoint officers

Officers: manage business operations

Neither Officers, Directors, or Shareholders are liable for debts incurred by the Corporation committed in conducting the Corporation’s business “Double-Taxation” unless “S” Corporation, which is a “Pass-Through” Formal incorporation process and annual registration with Secretary of State. Comprehensive record-keeping and tax filing requirements. Must file form 2553 with IRS to be considered a S-Corp

Limited

Liability

Company Members share profits per Operating Agreement which specifies management procedures Generally, Members risk only their investment in the LLC May be taxed as Sole Proprietorship, Partnership or Corporation depending upon the election filed with the IRS Similar to corporation’s requirements with regard to formation and operation