Starting a Business
Businesses may be organized in many ways. The most common forms today are sole proprietorship, partnership, limited partnership, limited liability company and corporation. Corporations and LLCs are most common and both are separate legal entities (business structures) that enjoy certain protections under the law and important benefits. Most people form a legal business structure to safeguard their personal assets. The benefits to incorporating or forming a Limited Liability Company (LLC) allow you to conduct your business without worrying that you might lose your home, car, or personal savings because of a business liability and you can save on taxes. Alpha Trucking Solutions can help you decide which one is right for you.
Many people start their business venture as sole proprietorship. As the business grows, in most cases it is recommended that the owner changes the business structure to a Corporation or a Limited Liability Company (LLC) as they offer a range of tax and legal advantages over a sole proprietorship:
Asset Protection – Allows owners to separate personal and business assets, therefore protecting personal assets from business debts and obligations.
Business Name Protection – Forming a corporation or a LLC will protect your business name from being used by somebody else.
Tax Benefits – Corporation and LLCs may deduct a wide range of expenses, such as salaries, depreciation and other business expenses before they are taxed on their income.
Common Types of Business Structures
Sole Proprietorship – Most basic form of business structure where the owner is personally liable for all of the business obligations. If a sole proprietor has liability such as a business loss or judgment against him, he might have to sell his car, house or other property to fulfill that liability.
Corporation – Business structure owned by shareholders governed by Board of Directors who in turn elect Officers to run the corporation. Each owner’s assets are separate from corporation’s assets and are not liable for the liabilities of the corporation. Can be owned by other corporations or LLCs. Corporations distribute profits to shareholders through dividends and pay taxes on the net income of the corporation creating a so-called “double taxation”.
S Corporation – Corporation that has been granted special tax benefits by the IRS. To be eligible for these benefits, it cannot have more than 100 shareholders, must be owned by individuals, specific trusts and estates, or certain tax-exempt organizations. The profits and losses from the corporation are distributed proportionally to the owners thus avoiding the “double taxation” of the regular corporation.
Limited Liability Company (LLC) – LLCs are a simpler business structure the a corporation and are owned by its members. Profits and losses from the business operations are distributed to the members according to the LLC operating agreement. LLCs have to pay Self-Employment taxes that the S Corporations don’t have to.
Partnership – similar to LLC, but most states limit partnership ownership to certain professionals, like lawyers, architects, accountants. LLC and Corporations can be owned by other LLC and corporations, where in most cases LLPs cannot.