Thursday, December 19, 2013

Choosing the right business entity when starting a company.

Choosing an organizational structure is one of the more important decisions you will make in starting a business. You only want a partnership if it is a limited liability partnership (LLP) or limited liability limited partnership. You may want a limited liability company (LLC), which has characteristics of both LLPs and corporations. In fact, LLCs are not recognized by the IRS. If you are a one-person LLC, the business entity will be disregarded for federal tax purposes. If you are in a multiple-member LLC, you will be taxed as a partnership by default. If you, your lawyer and accountant determines it is economically advantageous to be taxed as a corporation, you can elect to be taxed as such.

If numerous stakeholders are involved, you might want a corporation. As common sense indicates, corporations are taxed at the federal corporate tax rate. For any business entity, state tax rates may differ, so individual considerations will predominate in deciding what the best organizational structure is for your business.

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