When forming an entity, it's always a good idea to think the process through before you begin. Entity formation can be as complicated as you make it or as easy as 1,2,3. In this article, I want to highlight a few of the most popular entity structures that are being used by most business owners. Enjoy your reading!
Let's talk about verbiage just so we are on the same page when we discuss entities. Corporations and LLC's are types of entities. These shouldn't be used in place of the word entity when speaking with an attorney or accountant because they might misinterpret what you are asking them to form and it could end up costing you lost of money.
A few of the benefits of corporations are primarily liability protection and tax savings. Liability protection is important because people are suing everyone these days and if someone slips and falls in your office, they could sue you for it. If you don't have a properly structured entity in place, they could come after your personal assets instead of just the business assets. Tax savings is also a huge benefit
LLCs or their proper name is limited liability companies have a lot of the same benefits as a corporation. There are different paperwork requirements for each state but as far as the liability protection and tax savings, they are very similar.
Sole Proprietorship's are by far the easiest way to form a business. You just have to use your social security number as the company's tax id number as you file the business taxes on schedule C of your personal tax returns. There are some tax advantages to have this form of entity as well, especially if you run a very small business out of your house that doesn't quite justify a corporation or an LLC.
Giving away equity in your business is a good route to take if you are looking at outside capital partners. As a sole prop, you can't split up equity since you represent the business. Corps and LLCs allow for multiple owners so these are great vehicles for raising money. - 31960
Let's talk about verbiage just so we are on the same page when we discuss entities. Corporations and LLC's are types of entities. These shouldn't be used in place of the word entity when speaking with an attorney or accountant because they might misinterpret what you are asking them to form and it could end up costing you lost of money.
A few of the benefits of corporations are primarily liability protection and tax savings. Liability protection is important because people are suing everyone these days and if someone slips and falls in your office, they could sue you for it. If you don't have a properly structured entity in place, they could come after your personal assets instead of just the business assets. Tax savings is also a huge benefit
LLCs or their proper name is limited liability companies have a lot of the same benefits as a corporation. There are different paperwork requirements for each state but as far as the liability protection and tax savings, they are very similar.
Sole Proprietorship's are by far the easiest way to form a business. You just have to use your social security number as the company's tax id number as you file the business taxes on schedule C of your personal tax returns. There are some tax advantages to have this form of entity as well, especially if you run a very small business out of your house that doesn't quite justify a corporation or an LLC.
Giving away equity in your business is a good route to take if you are looking at outside capital partners. As a sole prop, you can't split up equity since you represent the business. Corps and LLCs allow for multiple owners so these are great vehicles for raising money. - 31960
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