Knowing how to start a business is not common knowledge. It’s not taught in schools, and even when you decide to start a business, there are conflicting answers to your many questions. One of the first things you need to sort out is what business structure is right for you. You must initially decide this correctly as it will affect everything from your day-to-day operations to your long-term potential.
Your business structure also affects your tax structure and how protected you are in case of liability. Before choosing your business structure, you need to know your goal. Is this a part-time side business, or do you hope to scale your business across the country and pass it down for generations? You also need to consider investors, employment, partnerships, financing, and more.
Hoegen & Associates attorneys are located in Wilkes-Barre, PA, and serve Luzerne County with business law services. If you are unsure how to proceed with your business, our Wilkes-Barre, PA business lawyer is highly skilled in answering your questions and providing guidance as you start your entrepreneurial venture.
Choose the right business structure for your company based on the four most common business structures below.
The Four Most Common Business Structures
Limited Liability Company (LLC)
An LLC is a combination of a corporation and partnership.
Pros of LLCs
The pros are that it will protect your personal assets, such as your house, car, and savings account, in case of liability, and the profits and losses can be considered personal income so you can avoid corporate taxes.
Cons of LLCs
The cons are that LLC business owners are considered self-employed and will be responsible for paying self-employment taxes.
A sole proprietorship is the easiest business structure to get started with and gives you complete control over your company. Sole proprietorships are ideal for small, low-risk businesses that want to stay small or test their business idea before taking it bigger.
The negative side to consider is that your personal assets are not protected in a sole proprietorship, so you can be held liable for the company’s debts.
There are two kinds of business partnerships: limited and limited liability.
In a limited partnership, one person will have unlimited liability, while all other partners have limited liability and limited control over the company. The general partner is required to pay self-employment taxes.
Limited Liability Partnerships
A limited liability partnership is similar to a limited partnership, except all partners have limited liability. No one will be responsible for the company’s debts or other partners’ actions.
Corporation (C Corp)
Pros of Corporations
Corporations offer the best form of protection from personal liability. A corporation is best for medium to large-sized businesses that need funding and intend to go “public.” They can raise funds by selling stock, which also helps to attract new employees.
Cons of Corporations
They pay income tax on their profits and can sometimes be taxed twice – after the company makes a profit and when dividends are paid to shareholders. Corporations require heavier record keeping, processes, and reporting and usually cost more to form.
Receive Professional Advice
The attorneys at Hoegen & Associates help business owners across Wilkes-Barre and Scranton, PA, build a foundation for their business ventures. From creating a business plan to providing guidance and legal protection throughout the business’ lifetime, let us know how we can help.