Corporate Structures to Consider When Forming Your Small Business

A Home Business Article Contributed by Donna m. Brown

Structure Your Small Business As a Corporation or Llc

There are many ways to structure your small business for tax and legal purposes. You should base the structure of your business on your intended business activities.

The general corporation, sometimes refered to as a "C" corporation is common because it allows unlimited shareholders and limits a stockholder's liability to their investment in a company.

An LLC or limited liability company structure combines the corporate advantage of limited personal liability with the pass-through taxation advantage of a partnership.

While these are the most popular forms of legal structure, they are not the only forms and your options as a small business owner in America are wide opened.

What Kind of Legal Structure Options are Open to Your Small Business?

If you haven't researched legal structures much, these names might seem like Greek to you. Becoming familiar with the different types of legal structures that are available will help you to make an informed decision about what's best for you and your small business.

Four business structures will be discussed here including the limited partnership (LP), limited liability partnership, close corporation and subchapter S corporation.

Your Small Business and Limited Partnerships

Limited partnerships include limited partners who contribute capital to the company. These partners have limited liability to the extent of their investment. General partners, who manage the company, have unlimited personal liability for its debts. This can be an important consideration when your business begins to dip and you have to search for exit options.

Limited partnership companies can raise capital without involving outside investors. But remember, partners can be held personally liable for the business either in whole or to the extent of their contributions.

Is a Limited Liability Partnership Right for Your Small Business?

Professionals such as accountants, doctors and lawyers often use limited liability partnerships because partners aren't personally liable for the malpractice of other partners. Partners report profit or loss on their personal tax returns. Some states do not offer this type of structure and some that do restrict its use for certain professions.

What Can a Close Corporation Structure do for You?

A close corporation is like a general corporation, except that a maximum of 30 shareholders can participate in the company. Some close corporations require new stock to be offered to existing shareholders before it is offered to outsiders.

This might be a good structure for business owners who work alone or who want the protections afforded by corporate status with limited involvement by others. Not all states offer this type of corporation.

Subchapter s Corporations Offer Your Small Business Special Tax Status

An S-corporation is one that has opted for a special tax status through the Internal Revenue Service. Some people refer to them as "S-Corps."

This is a good choice for business owners who want their corporations to have tax benefits, particularly pass-through benefits, of a sole proprietorship or partnership. Profits and losses of the company flow through individual tax returns of its shareholders depending on their investment in the company.

These are just a few of the options that are available to you. For example, you might want to explore the benefits and drawbacks to becoming a professional corporation (PC), a professional limited liability corporation (PLLC) or a non-profit corporation. If you have special circumstances in your small business that require special consideration, do not hesitate to contact an attorney and an accountant for advice on how to protect you personally and your small business as a whole.