Different Types of Businesses
Sometimes I get questions about how people should set up their business, or if they want to start another business, what’s the best way to go about it. Should they stay with being a Limited Liability Company (LLC) or should they switch to being an S Corporation? The following chart breaks down some of the basic components as to what belongs with each entity.
Single Member LLC | Partnership (can be LLC) | S Corp (Can be LLC) | C Corp |
One individual carrying on a business | Two or more owners conducting business | Ownership is through owning shares of stock | A legal association carrying on business organized under law |
Minimal legal restrictions | Minimal legal restrictions |
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Owner has complete freedom over business decisions | No limitations on number of partners | Limited to 100 shareholders | No limited number of shareholders |
Entitled to 100% of the profits | Flexibility in dividing up profits | Shareholders who perform services are paid as employees and income is reported as a W2 | Shareholders who perform services are paid as W2 employees subject to payroll taxes |
Owner is self-employed and pays self-employment tax on net profits | Partnership pays no income tax – profits pass through partners individual payment of tax | S Corps generally pay no tax. Net Profit and tax liability flow through to the shareholders | Net profits are subject to tax at the corporate rates. |
LLC entities can be taxed as single member, partnership or even S-Corp. Determining what is the best option for your business structure is not an easy process. Both legal and tax considerations need to be considered for the best fit.
Please feel free to contact me to help you determine what type of entity you need.
