Choosing the right business structure

By Brian Ravencraft

When it comes to what business structure is right for your new or next business venture, you have several options to choose from. Making the right decision can help you with everything from being profitable and poised for growth to staying tax compliant. This month, I will break down some of the most popular business structures for you. These aren’t the end all be all when it comes to paths you can take, but these ones tend to lead the pack.

Sole proprietorship 

This is the option you will see many single workers select. Think of freelancers or those who consult with many different entities.  It takes little set up effort to become a sole proprietor, but this is truly a one-man-band type of situation. Whatever the business owes, falls solely to you.

 Limited liability company 

Also known as an LLC, this structure option has really been having its day in the sun in recent years. Reasons for its upswing are many but one attractive feature is the fact that you can be the owner of your LLC but also have many different people involved in your operation, allowing you to share the load just a bit when it comes to business debt and taxes.

Corporations  

A popular place to be, this is where you will see S Corps and C Corps. No matter the type, a corporation is viewed as an entirely different entity, separate from its owners when it comes to tax purposes. A higher level of personal protection comes along with a corporation, as well as lower corporate taxes. However, this can be trickery terrain than the options mentioned above.

The C Corporation is the standard corporation under IRS rules, while the S Corporation is a corporation that elects special tax treatment. A C Corp is taxed as a separate entity and therefore pays tax at the corporate level. Owners can face double taxation under a C Corp as the dividends are subject to tax at the individual level as well. The S Corp is a pass-through entity, so tax is paid at the individual level only. Besides tax, there are stock differences between the two types of corporations.

Partnerships 

This is the option you will see for many businesses owned by multiple people. Each partner involved in the operation is responsible for making the business successful and in return they reap the benefits that are often laid out in a partnership agreement.

There are pros and cons associated with each structure. I encourage you to speak with an accountant and an attorney before making any final decisions. As always, I can be of help. Feel free to reach out. 

Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.agribusinessaccounting.com or www.HolbrookManter.com.