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Differences in Legal Structures; Which Structure is Right for You?

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Differences in Legal Structures; Which Structure is Right for You?

Published: April 28, 2009 Updated: February 9, 2011

Starting a business involves many critical decisions before hiring your first employee or planning a Grand Opening event. After reading articles and talking with other business owners you may be aware of important decisions to consider for your business like how to finance, which licenses and permits apply to you, and how do you plan to comply with labor and employment laws. These issues are all very important but there is another decision you must make. You must decide whether your new business will be a sole proprietorship, partnership, corporation, or limited liability company (LLC). Examples of these expenses and added costs include tax-filing requirements, complexity of business legal documents with appropriate agencies, and federal, state, and local laws dictating other necessary actions of the business.<span> </span>Consult with an attorney for specific guidelines and estimates for the administrative work required in your state

Message Edited by CharlotteW on 09:11 AM

Message Edited by CharlotteW on 09:12 AM

Message Edited by CharlotteW on 04-30-2009 02:20 PM

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If a person has an S corporation business structure, but the business is inactive, Do you still have to file taxes? even though the company has no assets or liabilities, do they have to worry about paying any type of fees or taxes?
Because of changes that were made just a few years ago regarding S Corporations. You must file a yearly return with the IRS even if the return is all zeros. It's either a $100 or $200 per month fine for late or un-filed returns can be faced if you try to pick the filing back up after a dormancy. In Michigan, I also am required to file a yearly Information update with LARA - Department of Licensing And Regulatory Affairs. $25 if filed before may 16 of each year or face dissolution.
Selecting a business structure is a very important decision that can greatly affect your business. Below is a general idea of the different structures. Business entities are creatures of state law and every state is different. You should always consult with a business attorney and an accountant. A sole proprietorship is owned by one person and there is no legal distinction between the owner and the business. All profits and losses are accrued to the owner, and subject to taxation. In a partnership, owners share the profits and losses associated with the business. Corporations are the most common form of business organization. It's given legal rights as a separate entity from its owner, thus keeping its owner from being liable if the company is sued. Corporations are owned by a group of people known as shareholders. An S Corporation is similar to a corporation, in that business owners have limited liability in the company. However, S corporations generally do not pay income taxes, but rather, the business' income or losses are passed along to shareholders. A Limited Liability Company (LLC) is the hybrid of a sole proprietorship and a corporation. Like a corporation, the owners of an LLC have limited liability, but is also shares the pass-through taxation of a sole proprietorship or partnership (meaning, if you own an LLC, you are only taxed once for your business).
Excellent breakdown guys. I know in the past I always struggled with the differences between different business structures.. Tyler GhellerLos Angeles Lawyers & Attorneys Message Edited by NicoleD on 09-30-2009 12:13 PM
I have a question regarding to this article: if a wife and a husband form a LLC elected S corp as taxation purpose with husband own 98% share and wife own 2% share, can the LLC apply the full fringe benefit deduction for the wife (like C corp could) since she owns only 2% share without being taged a Personal Service Corp (PSC) which has to pay a flat 35% income tax?

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