Choosing a Business Structure for Your Small Business

The Small Business Startup Guide

When starting a yard sign small business, most people choose between setting the business up as a sole proprietorship or an LLC. If you are going into business with a partner, then you may want to look into forming a partnership. Forming a corporation is also an option, however  the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting. Here’s a quick rundown on the basic differences between a sole proprietorship, and LLC, partnership, and an S Corp:

Choosing a Business Structure for Your Small Business

Sole Proprietorship

A sole proprietorship is the easiest business structure to form and requires the least amount of mandatory reporting and record-keeping. As a sole proprietor, your business is not considered a separate business entity, meaning your business assets and liabilities are not separate from your personal assets and liabilities. The downside of a sole proprietorship is that you can be held personally liable for the debts and obligations of the business. You also may find it more difficult to get a bank loan for your business.

Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.

Always consult with a professional before deciding on a business structure.

LLC (Limited Liability Company)

An LLC is a business structure that protects its owners from personal responsibility for its debts or liabilities. This protection is the primary reason many small business owners choose to start as an LLC. LLCs can protect your personal assets, such as your house, car, savings accounts, etc., should your business ever face bankruptcy or lawsuits. LLCs essentially combine the characteristics of a corporation with those of a partnership or sole proprietorship.

With an LLC, profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security. LLCs can be a good choice for business owners who have a significant amount of personal assets, and for owners who want to pay a lower tax rate than they would with a corporation.

Always consult with a professional before deciding on a business structure.

Partnerships

If you plan on starting your yard sign rental business with a partner, you may want to consider forming a partnership. Partnerships are the simplest way to structure a business when two or more people go into business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).

Limited partnerships have only one general partner with unlimited liability, while other partners have limited liability. Those with limited liability will generally have less control over the day to day operations of the company. Profits are passed through to personal tax returns.

Unlike a limited partnership, limited liability partnerships give limited liability to every owner. An LLP protects each partner from debts against the partnership, they won’t be responsible for the actions of other partners. 

Always consult with a professional before deciding on a business structure.

S Corporation

As defined by the Internal Revenue Service, S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.

How taxes get reported through an S corporation can vary by state, however most states recognize S corps the same way the federal government does and tax the shareholders accordingly. S corps must file with the IRS to get S corporation status and you’ll still have to follow the strict filing and operational processes of a C corporation.

S corps can be a good choice for a businesses that plan to grow big and not worry about personal liability issues.

To form a business entity such as a corporation, limited liability company, or nonprofit corporation, you must file formation documents with your state.

Always consult with a professional before deciding on a business structure.

Below is a list of online companies that can help with business formation and other legal startup needs

Legal Zoom

Legal Zoom helps customers create legal documents without necessarily having to hire a lawyer. Available services include wills and living trusts,  business formation documents, copyright registrations, and trademark applications. The company also offers attorney referrals and registered agent services.

 

Zen Business

ZenBusiness is an online business services company that makes legal filing simple and affordable for small businesses. As a customer of ZenBusiness, you can use their LLC formation service to file on your own, without needing to hire expensive attorneys or legal experts to do it for you. The Zen Business mission is to enable anyone to start, run, and grow their business while avoiding the common pitfalls that derail hopeful entrepreneurs. No more having to wade through forms, taxes, or ongoing state compliance.

 

Rocket Lawyer

Rocket Lawyer is an online legal technology company that provides individuals and small to medium-sized businesses with online legal services—including incorporation, estate plans, and legal document review. The company also provides a network of attorneys that consumers and small businesses can consult with on legal issues through its On Call service.

 

SwyftFilings

Swyft Filings is owned by an experienced lawyer who saw a need to automate the business filing process, making it easier for small businesses and consumers to launch their business dreams without having to find, hire, and pay high-priced and uncertain legal fees