Small business owners may not realize it, but their personal assets become vulnerable when they operate without establishing a business entity.
Creating a corporation or limited liability company limits the owner’s personal liability for business-related debts. Here is some more specific information on the benefits of both corporations and LLCs.
There are two types of corporations, S corporations and C corporations. S corporations offer limited liability for the business’s officers, directors, employees and shareholders. These entities pay taxes once and benefit from pass-through taxation.
C corporations are the most common type of business structure. They enhance growth potential with unlimited shareholders and stock sales. A C corp has certain tax advantages, such as tax-deductible business expenses. The greatest drawback of C corps is double taxation. The C corp pays taxes both when earning income and shareholders also pay taxes on their tax returns.
LLC owners obtain shelter from personal liability and are only taxed once. This is an advantage over selecting a C corp. LLCs are flexible and require the owner to form a bank account separate from their personal accounts. This prevents funds from becoming intermingled.
An LLC permits additional members when necessary. Further, there are several levels of ownership available to prospective purchasers. Non-managing and non-voting members become an option for LLCs as they generate more equity.
Small business owners have multiple business entities to choose from, LLCs and corporations are two types that could help you. Learn about the best option for your needs before selecting one.