Understanding The Business Structure
Viewed: 28843 Times

All new business owners have several responsibilities. Probably the biggest responsibility is the federal tax responsibility.

The income tax that a top new business needs to pay depends on the form that the business entity establishes. The form of the top new business determines which income tax returns have to be filed.

The most common forms of business that a new business owner may consider include sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. The Limited Liability Company is a relatively new business structure allowed by state statute.

The Limited Liability Company structure is an attractive business structure for most new business owners. The advantage of this structure for a top new business owner is that it is a type of business ownership combining several features of corporation and partnership structures. However, it is not a corporation or a partnership.

In a Limited Liability company, the owner of the new business venture is called a member and not a partner or a share holder. In addition, the structure allows for any number of members to be part of the new business.

The advantage of this structure for a new business is that it exists as a separate entity much like a corporation. Members cannot be held personally liable for debts unless they have signed a personal guarantee.

Another advantage of this structure for an owner of a top new business is that Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 50-50, LLC have much more flexibility.

Probably, the biggest advantage of this structure for an owner of a new business is that all business losses, profits, and expenses flow through the company to the individual members. So, an owner of a top new business with this business structure avoids the double taxation of paying corporate tax and individual tax.

The disadvantage of this structure for a top new business owner is that LLC's need to get dissolved when a member dies or the new business company undergoes bankruptcy. However, corporations can live forever.

The LLC structure is also not suitable for all new business ventures that plan to "Go public" in a few years time.

A new business owner needs to evaluate all the business structures before adopting one for the new business.

 Digg It    Stumble It

Related Articles