A recent study from Bentley University revealed that 66% of millennials are interested in starting their own business. For those looking to establish a business, the structure is a crucial consideration. This article explores various business structures, their associated risks, costs, and advantages.
The simplest form of business structure is a sole proprietorship. This structure requires no upfront filing costs but exposes the owner to unlimited liability. In the event of a lawsuit, personal assets can be at risk. Additionally, sole proprietors are subject to self-employment tax on all earnings.
To mitigate risk, many entrepreneurs opt for a Limited Liability Corporation (LLC). This structure limits the liabilities of business owners to the business assets, protecting personal assets. While more costly to set up and maintain than a sole proprietorship, an LLC offers increased protection from potential legal actions.
For small business owners with fewer than 100 employees, an S Corporation is another option. Although more expensive to establish and maintain, an S Corporation provides key tax advantages. Owners can choose to take both a salary and dividend distributions from the company, reducing their self-employment tax burden.
A C Corporation is the final structure discussed in this article. Similar to an S Corporation, a C Corporation involves significant costs but offers limited liability protection. However, owners of C Corporations are subject to double taxation because the business itself is taxed, and then income is taxed when distributed to the owner.
When deciding on a business structure, it’s essential to consider factors such as growth plans, risk tolerance, level of involvement, costs, and exit strategies. Consulting with a tax advisor and business attorney is recommended before selecting a structure to ensure it aligns with your specific priorities and circumstances.
In conclusion, choosing the right business structure is a crucial decision that can impact the success and longevity of your business. Each type of structure has its own advantages and drawbacks, so it’s important to carefully consider your goals and consult with professionals to make an informed decision.
