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Q: I am launching my own small business venture, but I have some questions regarding business structures. Is there a right or wrong choice when choosing the type of business structure you will use? What are the advantages and disadvantages of each as well as tax consequences I should be aware of?
— T. Mills, Via the Internet
A: Here are a few guidelines:
Sole Proprietorship: This is owned by one person or a husband and wife. The sole proprietor is responsible for 100% of all business debts and obligations.
Partnership: An agreement between two or more business partners to carry on a trade or business. Each partner contributes money, property, labor, or skills and each expects to share in the profits and losses.
Limited Liability Co. (L.L.C.): The business can be transferred to new owners by agreement, and losses are deductible against other income. L.L.C.s cost more to set up and file taxes for.
C Corporation: A separate legal entity formed under state law that has authority to act in a manner that is distinct and independent of its shareholders. The income or losses of a C corporation do not flow through to shareholders.
S Corporation: While C corporations pay corporate income tax on the profits they generate, taxes are deducted from the individual stockholders of the S corporation. Personal assets will not be at risk because of the activities or liabilities of the S corporation.
When you incorporate, your business name has to be different from any other entity already incorporated or formed in the state. For more information, visit www.nass.org/sos/2004roster.html.