Types of Business Structures
Congratulations! You’re ready to start a new business in the Fort Worth or Tarrant County area. Before you register your business, talk with a business legal advisor to ensure you have considered the needs of your business today and into the future. The type of business structure you choose will be critical to your success.
Fort Worth business attorney Tawana H. Gray works with all types of business owners, from start-up small businesses to established businesses spinning off a portion of the business into a new venture. Ms. Gray can help you understand the pros and cons of each type of business structure. To schedule an initial one-hour consultation, call 817-270-9975 or contact us online.
Types of Business Structure for Your New Business
Sole proprietorship: This is the simplest and cheapest type of business to form. If you start to engage in business activities but don’t register your business, you are automatically considered to be a sole proprietor. But this type of business structure presents a lot of risk for the business owner. Your business assets and debts are not separate from your personal assets and debts. You could be held personally liable if your business runs into trouble.
Partnerships: When two or more people enter into business together, they can choose to form a partnership. There are two types of partnerships – a limited partnership (LP) and a limited liability partnership (LLP).
- · In an LP, one partner is the “general partner,” and that person runs the business and is liable for the business while the other partners are limited in their control and liability. Profits pass through the personal tax returns of the general partner. If you want the retain a majority of control, with silent partners in the background, this could be a good choice.
- · In an LLP, all of the partners have limited (but not zero) liability for the debts of the business as well as the actions of the other partners in managing the company.
Limited Liability Company (LLC and PLLC): An LLC blends the benefits of corporate and partnership business structures. LLC owners pay a lower tax rate than a corporation, and the filing paperwork is less complicated. Members of the LLC are considered self-employed and pay self-employment taxes. Their personal liability for the business – in terms of bankruptcy or lawsuits – is limited, but not zero.
An LLC is a good choice for those who want to protect personal assets and whose businesses are vulnerable to a degree of risk. Be sure you have considered how members will enter and leave your business. An LLC may have to fold and restart if you don’t specify a mechanism for changing membership.
A PLLC is a professional limited liability corporation, a business type exclusively intended for licensed professionals like accountants, medical providers, engineers, and architects, to name a few.
Corporation: There are several different types of corporations: C corp, S corp, B corp, and a closed corp, which is often a closely held family business. A non-profit is also a type of corporation, but it follows very different rules and is not taxed.
A corporation is completely separate from its owners, providing the highest degree of personal protection from liability. It’s a more expensive business structure to form and requires extensive record-keeping and reporting.
Tax liability varies depending upon the type of corporation you form.
- · C corporations pay corporate taxes and make distributions to shareholders, who pay taxes on that income. You will be subject to double taxation.
- · S corporation allows shareholders to be taxed at the individual level, not the corporate level, so it avoids the problem of double taxation. This type of corporation has the most restrictions on ownership.
- · Closed corporation have only a few owners and cannot be publicly traded. Liquidity can be difficult for this type of corporation.
- · B corporations are a new type of business that is legally required to balance profits with benefits with impacts on workers, customers, suppliers, the community and the environment.
Cooperative: Finally, there is a cooperative business structure. A cooperative is owned and operated for the benefit of its members/users. Profits are distributed among the members, who have purchased shares in the business. Like a corporation, it takes all financial and legal liability onto itself.
Contact a Legal Advisor To Discuss Different Types Of Structures
For clear, understandable guidance on choosing the right type of business structure for your new business, turn to the Law Office of Tawana H. Gray, PLLC. Call 817-270-9975 or contact us online to schedule an initial consultation.