If you are a Manhattan entrepreneur looking to get a business off the ground, you may be considering which type of legal organization is best suited to your enterprise. This decision can have many consequences, including just how much your business will pay in taxes. Accordingly, it’s vital that you fully understand your options so that you can make the right decision.
According to the IRS, the first step is to acquaint yourself with the different types of business structures commonly used. These include limited liability companies (LLCs), corporations, sole proprietorships and partnerships. Each type of structure involves the use of a distinct tax form, which will be utilized to file annual returns on behalf of your business.
Personal debt liability can be a significant concern, which is why many entrepreneurs choose to structure their businesses as LLCs when applicable. This option provides a bit of flexibility when it comes to owners, which can include other businesses (corporations and LLCs) as well as individuals. Corporations are similar to LLCs in terms of personal liability, but entail compliance with many additional statutes. Corporate tax rates are also applicable to this type of structure, although individual tax rates apply to any shareholder dividends dispersed.
Conversely, sole proprietorships and partnerships are much easier to manage. A sole proprietorship affords you total control as the owner of an enterprise, and can be applied to virtually any type of business. However, you will be personally liable for all debt your sole proprietorship incurs. A partnership is a bit different in that members of the partnership (consisting of two or more people) are only obligated to file informational returns on behalf of the business entity. Instead, partners declare business earnings or losses within their own personal tax returns.