The Incorporation of a Company: How to Determine Which Type of Business is Best for You

When starting a small business, it is important that an entrepreneur understands the different categories of businesses. With some background knowledge about the different categories, a you can determine which type of business is best for you.

Different categories of businesses serve specific purposes and/or specific situations. These can be distinguished based on the followings:

  • Taxation,
  • Business liabilities, and/or
  • The ability to control earnings as well as business losses.

The Three Categories of Businesses

There are 3 general categories of business establishments.

  • Corporations
    • When a business owner or business team decides to establish a corporation, they are attempting to establish a separation between the company and the owners. The owner ultimately becomes a shareholder in the endeavor. When a corporation has been established, an owner can choose to become an employee in the business and obtain a salary from the business for any work done for it. An S-corporation is an example of a kind of corporation.
  • Multiple Owner Business
    • This kind of business is formed by numerous individuals who have come together as owners. These individuals will be classified as owners and not employees. The category of multiple owner business also includes limited liability companies as well as partnerships.
  • Single Owner Business
    • When a business has a single proprietor, this means that the business is owned by only one person. This category includes single owner LLC businesses. Depending on the state, the single owner may not need to register with the state.

Different States Involve Different Requirements

Business categories are determined by different states. Through state business divisions or other offices, business owners can find more information about which categories are available. Some states could permit certain categories of businesses. Also, many states partake in various regulations or limitations that could predetermine business types. It is vital for all business owners to check with his or her state secretary, or other similar government agency, to determine which type of business can be formed based on what is available.

If you are considering starting a business, consult with a legal professional who has experience in the matter. When creating the foundation of the business, it is important to begin on the right path. The advice and support of a legal professional can provide a strong base for your company. The complexities of starting a new business can can quickly prove stressful and overwhelming. With the help of an attorney, he or she can ensure that you select the best type of business, which could result in a successful company.

How Do Different Types of Business Pay Taxes?

When checking to see what form of business is allowable by a state, a business owner will need to understand the various forms of these business types. The following is a limited list of different business types.

  • Sole Proprietorship
    • This form of business means that the business is owned and operated by a single individual. This business is considered a part of the owner and not a separate of different entity. All business earnings as well as the business losses are included in the owner’s tax return. Additionally, the owner holds a liability for all business lawsuits as well as any debts accrued.
  •  Corporations
    • When an owner or owners have decided to start a corporation, this means that the company has become a separate entity from the owners. When filing taxes, a company will not be included in the owner’s personal income tax forms unless it is simply to state he or she is a shareholder. All liabilities have been passed on to the corporation, which includes debts and lawsuits.
  • S-Corporations
    • Also known as a subchapter corporation, an s-corporation is defined as having the assistances of a limited liability corporation but is nonetheless taxed as a partnership.
  • Limited Liability Companies
    • A limited liability company, also known as an LLC, is not considered a corporation. Nonetheless, it obtains some of the benefits of a corporation. The formation of an LLC can be done with one or more owners.
  • Partnerships
    • When business owners have decided to enter a partnership, this usually means that they have agreed to equally share the benefits as well as any potential risks of the company. Partnerships do not always determine an equal share. There are owners who have a majority of stakes in the business and thereby will be held liable for losses, debts, and/or lawsuits the company can potentially face. Since there are a variety of different types of partnerships, consult with a knowledgeable attorney who can guide you on what type of partnership is best for you.

Seek Professional Help Before You Start Your Business

For each and every business, it is important to start on the right path from the very beginning in order to prevent difficulties in the future. There are many variations of business forms that can quickly turn confusing and certainly create roadblocks in your business plans.

Prevent mishaps with business partners. Speak with an experienced business attorney who can advise you as to what type of business is best for you.