Choosing a Business Structure

When starting your own business, it’s important that you choose the right structure to best serve your needs for personal liability protection, tax flexibility and administrative simplicity.

Your Options

Before you register your business, carefully consider which of these primary structure options is best for you:

Limited Liability Company (LLC)

This is the most popular choice for small businesses, as it protects your personal assets like your home and savings from business-related debts and litigation. LLCs also offer “pass-through” taxation, meaning the business will not be required to pay corporate income taxes. Instead, you will pay taxes on the business income at your personal income tax rate.

Sole Proprietorship

This is the simplest and easiest structure to form, but there’s no legal separation between you and your business. So your personal assets would be at risk if your business were sued or went into debt.

Partnership

If you are going into business with someone else, this may be ideal. Like a sole proprietorship, general partners are personally liable for business debts. But a Limited Partnership or Limited Liability Partnership (LLP) can provide some protection.

Corporation (C-Corp or S-Corp)

This structure provides the strongest liability protection, but corporations are heavily regulated and come with more complex tax filing requirements and stricter operational formalities than other options.

Considerations

A few things to consider as you determine which structure best meets your needs:

Risks

If your business carries high physical, financial or legal liability, an LLC or corporation is typically recommended.

Taxes

Simpler entities allow you to report income on your personal tax return, while corporations are required to have separate corporate tax filings.

Growth Plans

If you’re starting up a side business, an LLC or sole proprietorship will probably work well for you. If you plan to scale rapidly, a C-Corp might be necessary.

Questions?

Contact your local City banker for guidance on business banking options or start-up funding.