Starting a business is a way of fulfilling your life’s purpose. Whether you’re looking to form a startup or restructure an existing company, you probably spend much of your time envisioning your goals for the future. You have a vision, but you also need a legal plan that gives you the freedom to achieve your highest mission. It is wise to decrease your exposure to liability and to limit your tax burden so you can afford to allocate more resources to your true objectives. No matter the size or age of your organization, there is a type of formation that is right for you.
Independent Legal Structures
C corporations, S corporations and limited liability companies (LLCs) are all considered independent legal structures. They prevent you from being held personally liable for legal actions taken against the company and separate your personal assets from your business debt. There are also no limits to the number of shareholders in any of these entities. However, C corporations are unique in that they are taxed on corporate profits and shareholder dividends rather than directly through their owners. The owners of S corporations and LLCs must report their shares of profit and loss in the company on their personal tax returns. C and S corporations must also hold annual meetings and record their lengths, while LLCs are not required to do so.
Types Not Considered Independent Structures
Partnerships, joint ventures and sole proprietorships are not classified as structures separate from their owners. The owners of these entities remain personally liable for lawsuits filed against the business. Additionally, owners must report their shares of profit and loss in the company on their personal tax returns. There is no true distinction between personal assets and business debt. These structures typically do not require state filing and are easy to form and operate. The owners of these entities are also not mandated to hold annual meetings. Therefore, partnerships, joint ventures and sole proprietorships are good options for those seeking a high degree of flexibility.