Business Structures
FIN/571
July 13, 2015
Business Structures
Sole Proprietorship
This type of business structure is the easiest to create, almost anyone can file for this business. The greatest advantage of this structure is that taxes are passed down to the owner and filing it is as easy as doing extra schedules to its 1040 form. The greatest disadvantage is that owners have full liability responsibility for the company debts.
Partnership
This business structure requires to have a partnership agreement in place. The partnership agreement highlights very important guidelines, such as the separation of revenues. As the sole proprietorship, all owners are fully liable for any debts that the partnership may acquire. There are several taxes that need to be considered such as Income Tax, Self-Employment and Estimated taxes (SBA, 2015). The biggest fall of partnerships is how much owners have to deal with each other. All partners must be on the same page and need to decide as a group on any major decisions to the regard of the partnership.
General Corporation
This is the most common structure since it's a separate legal entity. It is owned by stockholders, and there is no limited amount of stockholders. The main advantage of this corporation is that stockholders are protected from all business debt and liability. This type of corporation is very complex to setup and more likely will need a lawyer to setup. Additionally, when it comes to taxes, this is not an ideal business structure since it is double taxed.
Subchapter S Corporation
This type of corporation is mainly used by small businesses. It has a special tax status by the IRS that allows these types of corporations to be treated most like a sole proprietorship or partnership. The advantage comes mainly from a tax saving perspective where a corporation will have the same tax rules as a sole proprietorship and partnership. If a company shareholder leaves the corporation, it will not...