When you are getting ready to start on your new business, there are a number of things that you need to consider. First, you have to decide what kind of business you would like to run. You can decide on the location, if you are going to have some employees, when to open, and even what days of the week you would like to be open. It is a big deal to open your own business, and getting started on the right track is going to make all the difference in how well your business is going to run.
One of the most important things that you can consider when you are getting the business up and running is to pick out the entity that will work best for you. While some of those who are first getting into their business will assume that this is not important, it is going to make a big difference in how you run the business and how much liability you hold when the business gets into trouble. If you need some help setting up your business entity and want to make sure that you are doing it the right way, talk to a tax professional in your area before getting started.
Sole Proprietorship
The most common type of business entity is a sole proprietorship. Many people who are working for themselves and other small businesses will choose to go with this option. It allows them to have full control of the business. They and other partners that they are working with can make all of the decisions and won’t have to deal with shareholders or other issues when it comes to making decisions. You get the full freedom to run your business the way that you would like.
One issue with this kind of business entity is that you will be personally liable if anyone sues the business. This can make it hard for some people if they do go through being sued in the process. If someone does come after your business because something went wrong, your vehicles, home, and other personal possessions could be in harms way as well. Make sure to talk to your tax professional to ensure that this is the best business entity for your needs so you can help your business to grow.
Corporation
Depending on the type of business that you would like to run, a corporation could be the entity that you will want to choose. With this entity, you are going to have the least amount of control. This is usually shared among some partners and the shareholders who purchase into the business. This is one of the ways that the business gets money though and each of the shareholders are able vote on the decisions that the business is going to do in the future. There is also more paperwork with this option, but for some businesses, it can be well worth it.
There are some benefits. You will be able to save some money on the taxes for a corporation compared to one that is a sole proprietorship. This protects some of the income that you make from the business and keeps your income apart from the business. In addition, you will be able to get full liability with this option. If the business is sued, your personal assets will be protected from being harmed during this time.
S Corporation
The S Corporation is kind of the best of both worlds. It is a way to combine the two options that we discussed above into one, giving you the benefits of both. Many people like this option because they still get to be the ones in charge. They can make the decisions and not have to worry about answering to stock holders or following all the rules that corporations are required to follow.
But this kind of business entity does have the benefit of allowing you to still keep free from some of the liability issues that can come up while running the business. While you are still the one who gets to be in charge and make the important decision, you will still get some of the protection that you come to expect when choosing a corporation. Because this entity combines both of these into one, you are going to find that it is really popular among business owners.
Picking out the right business entity that works the best for your needs is not always easy. You have to consider a lot of different things about your business and about the amount of control and protection that you would like to have for your business. The amount of paperwork and record keeping that you want to deal with is also a big factor when it comes to your business. When you are ready to pick out the business entity that will work for your needs, make sure to talk it over with your tax professional to ensure you are picking out the right one.
Finding the right business entity for your needs is never an easy process. You need to find the right tax professional who can be by your side from the beginning, answering all your questions and ensuring that you make the right decision for the success of your business. Contact our offices today to find the right tax professional to help you out.
Simon Hase, CPA