Business Entity Types

Sole Proprietor

A Sole Proprietor is a business that is not separate from it's owner. The owner files and pays the business taxes on their personal tax return and is fully liable for all debts incurred by the business. There can only be one owner and the ownership cannot be transferred to another person. 

Partnership

A Partnership is owned by two or more persons. There are several types of Partnerships each having differing levels of personal liability for partners. The partnership files a partnership tax return and the partners pay their share of the partnership taxes on their personal tax returns.

Corporation

A corporation is an entity unto itself, a person under the law. The owners are the shareholders that elect a board of directors that select the executive officers to manage the day to day business. There can be one shareholder, director and Officer, one hundred, or even one million or more, depending on the specific structuring. The shareholders are not liable for the debts of the corporation. There are different types of Corporations. The main types of corporations are a C-Corporation and an S-Corporation. Both types file corporate tax returns, but a C also pays taxes on the corporate return while the S pays most of its taxes on the shareholders personal tax return. 

LLC

An LLC, Limited Liability Company, is a hybrid entity possessing characteristics of other entities. The LLC is owned by its members who are not liable for the business debts. Generally speaking, a single member LLC files taxes as if it was a sole proprietor while a multi-member LLC files taxes as a partnership. However, an LLC can choose to be taxed as other entities. An LLC is generally the best structure for owning real property. 

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Business Formation

Businesses are legally formed at the state level with that states Secretary of State.

Contrary to popular belief, there is no one size fits all business structure. The type of entity chosen for a business is one of the most important decisions to be made and has long lasting consequences. This decision is not to be made lightly and needs to be chosen based upon the underlying factors unique to each business. Brooklyn Tax & Accounting will outline the conditions to help you and your business make the right choice.

Things to Consider

The industry of the business, the ownership and management of the business, whether the company will own property, the tax implications for the business and its owners, are just a few of the many details to consider when choosing a business structure.

 

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