Congratulations! You have come up with your great idea and you’re ready to start putting your business to work. How do you structure your business so it continues to succeed and grow as it ages.
Jumping in without all of the information could lead to bad decision making. There are various ways to set a company up. We’ve outlined them below for you.
Corporation – A corporation, otherwise known as a C-Corp, is an independent legal entity which is owned by its shareholders. This places the liabilities on the company itself and not each of the individual shareholders. The corporation is responsible for any and all actions and debts that occur during the course of business.
S Corporation – An S Corporation, otherwise known as an S-Corp, is a way of setting up your business so it can avoid some of the double taxing that a C-Corp encounters. The IRS has a list of considerations one must meet in order to be able to file as such.
Partnership – There are a few different partnerships. The general requirement being that there is a single business and two or more people share ownership of that business. Each “owner” contributes monies, property, labor, time, and any other efforts associated with the business. Every partner shares in either the profits or losses the company has over the course of its lifetime.
Types of partnerships:
- General Partnerships – Profits, liability and management duties are divided equally amongst the partners.
- Limited Partnerships – Partners have limited liability and limited input with the management’s decisions. These depend on each partners investment percentage.**
- Joint Venture – this acts the same as a general partnership with the only difference being this is for a limited period of time, or for one given project. To continue doing business past that time period the partnership would need to file again or reclassify as a general partnership.
**Please note, this is not the case everywhere. New Jersey just changed its laws regarding LLCs and this statement does not hold true. See http://www.greenco.com/insights/new-jersey-limited-liability-act-changes for more information.
Limited Liability Company (LLC) - An LLC is a business which blends elements of a partnership and a corporation. They must follow strict rules as it pertains to naming and utilizing the LLC term in their name. The owners are referred to as members and each member of the LLC takes on the tax burden. This means that the LLC itself is not taxed but rather the profits and losses flow through to the personal returns of the members.