The Best Corporate Entity for a New Business
Transcribed article based on the video above.
A lot of folks will ask me, what’s the best corporate entity when starting a new business? You should always consult with an attorney, but as a very quick overview, there are four general types of structures.
The first and most basic is a sole proprietorship and just by going into business you are pretty much a sole proprietor. Most sole proprietors will get a fictitious business name or a DBA, meaning “doing business as”, so on checks you can actually have a name other than yours.
There is a general partnership, which means you are working with somebody else, just by the virtue of working with them you have formed a partnership, you may want to have some kind of agreement but it’s not something that you need to register with your state or any federal agency.
Now, you can also form an LLC, or a limited liability company. The main benefit of a limited liability company is that it gives you some protection so that if someone were to sue you there is a corporate veil. Ideally, you can protect yourself so your personal assets are different from your business assets. A lot of times people like LLCs because for tax purposes they are passive entities, which means if the business takes a loss you can claim that for your own personal taxes.
Then there are more traditional corporate entities like an S corporation or the C corporation, these give you the most amount of protection, the strongest corporate veil, separates you from the corporation, but often times people don’t like those entities, especially C corporations because there is double taxation. Meaning if you start a business and it’s your C corporation, you are going to get taxed on a business level, the business profits are going to get taxed and then what you get paid as an individual in that corporation will get taxed on an individual personal level.
So it’s a very brief overview of the four entities, like I said, consult with an attorney, but hopefully it gives you a little more knowledge of which ones you might like to pick a which ones are right for you.
Jason Nazar is the co-founder and CEO of Docstoc. He’s a frequent author and speaker on small businesses topics. You can read more of his posts here on Docstoc and at his blogJasonnazar.com.