Means to getting the secrets to how to choose a business structure that will at the end of the day help you keep your business in shape and keep it along in the journey to greatness. A structure is an arrangement and organization of interrelated elements in a material object or system, or the object or system so organized.
They are social organizations of individuals in various life situations. Structures are applicable to people in how a society is as a system organized by a characteristic pattern of relationships. This is known as the social organization of the group. The debate surrounding the influence of structure and agency on human thought is one of the central issues in sociology. In this context, agency refers to the individual human capacity to act independently and make free choices.
One of the Ways on How to Choose a Business Structure
Having a knowledge of the various types of business structure is prerequisite to getting hold of choosing the best that will work efficiently for your business idea and objective. So, the different forms of structure of business that entrepreneurs can use in the growth and progress of their ventures are relayed below:
Sole Proprietorship
An unincorporated business that is owned by one person who reports business profits on his or her individual tax return. A sole proprietorship is the simplest business structure and is straightforward to start.
Partnership
An unincorporated business owned by multiple owners, either people or other businesses. Profits are divided among its owners and reported on their tax returns. Common partnership types include general partnerships, limited partnerships, limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs).
Limited liability Company (LLC)
An LLC is a hybrid business structure that limits the personal liability of its owners — called members — like a corporation but allows the profits to be taxed on either a member level or the corporate level.
S Corporation
An S corporation has one class of stock and no more than 100 shareholders, none of whom can be another for-profit business or a person without a green card who doesn’t meet IRS residency requirements. Profits are taxed on shareholders’ tax returns, and shareholders have limited liability.
C Corporation
A corporation whose profit is taxed once on the business level and a second time on an individual basis when earnings are distributed to shareholders, who have limited liability for the business’s debts. C corporations can have multiple classes of stock and an unlimited number of shareholders.
Switching business structures is possible, but it’s best to decide early on which one you’ll need for the next few years. It can get complicated — not to mention pricey, in terms of legal fees — to change structures, and the effort could distract from running your business.
How to Choose a Legal Structure for Your Business
Here are some of the necessaries you need to know in order to choose a legal structure for your business:
Taxes
Sole proprietors, partnership owners and S corporation owners categorize their business income as personal income. C corporation income is business income separate from an owner’s personal income. Given the different tax rates for business and personal incomes, your structure choice can significantly impact your tax burden.
Liability
Limited liability company (LLC) structures can protect your personal assets in the event of a lawsuit. That said, the federal government does not recognize LLC structures; they exist only on a state level. C corporations are a federal business structure that includes the liability protection of LLCs.
Paperwork
Each business legal structure has unique tax forms. Additionally, if you structure your company as a corporation, you’ll need to submit articles of incorporation and regularly file certain government reports. If you start a business partnership and do business under a fictitious name, you’ll need to file special paperwork for that as well.
Hierarchy
Corporations must have a board of directors. In certain states, this board must meet a certain number of times per year. Corporate hierarchies also prevent business closure if an owner transfers shares or exits the company, or when a founder dies. Other structures lack this closure protection.
Registration
A business legal structure is also a prerequisite for registering your business in your state. You can’t apply for an employer identification number (EIN) or all your necessary licenses and permits without a business structure.
Fundraising
Your structure can also block you from raising funds in certain ways. For example, sole proprietorships generally can’t offer stocks. That right is primarily reserved for corporations.
- Potential consequences for choosing the wrong structure
Your initial choice of business structure is crucial, although you can change your business structure in the future. However, changing your business structure can be a disorganized, confusing process that can lead to tax consequences and the unintended dissolution of your business.
