In order to make the most out of your company, choosing the right entity type for your business structure is crucial.
Entity types include sole proprietorships, partnerships, corporations, and limited liability companies (LLC).
This is the humblest business entity type. It’s simple to create a sole proprietorship, and it also simplifies the tax process. All you have to do is report your company’s gains or losses on your tax record. The only drawback is that it is tied to your personal assets. If your biz goes belly up, it could mean you risk losing your personal possessions.
This is a lot like the aforementioned sole proprietorship, but it involves working with another person. While it is the default entity type for your company, it also ties your personal assets and business to that of your partners.
While the process and paperwork involved in choosing a corporation might seem a bit daunting for new business owners, a corporation helps to protect your personal assets by creating a completely separate entity type from yourself. It makes the accounting process a tad more complicated, but you will be paying taxes based on what you select from your company. This allows you to owe a lot less to Uncle Sam and gives you more wages to keep your business comfortably floating along.
LLCs are extremely popular because they give the business owner a variety of choices. You can choose the tax structure of the corporation or a pass-through structure.