Should I start a corporation, LLC or other business?

Texas entrepreneurs excited to get new ventures off the ground should carefully consider their business operational options.

Coming up with an idea for a new business can be very exciting. Many Texas residents have started new companies over the years. While each situation is unique there can be some common factors to address. One of these is the decision about what type of operational model best fits the business needs. This is no small decision and determining the answer requires an evaluation of many factors.

Getting a solid understanding of the types of organizational structures available is a good place to start when making the choice about how to set up a new business.

Sole proprietorships

A sole proprietorship is very likely the simplest form of business model available. As explained by Entrepreneur, the cost and time involved in forming this type of business is relatively minimal. Taxes are also relatively straightforward requiring only the standard 1040 form with an additional Schedule C. Self-employment taxes will be assessed as well.

Perhaps the biggest downside to a sole proprietorship is the lack of protection for personal assets. An owner assumes full personal liability, leaving all property and assets vulnerable if ever sued.

Partnerships

Partnerships can be thought of in some way as a sole proprietorship with two or more people. They are the most straightforward way of structuring business ownership with multiple people. Like sole proprietorships, personal liability remains a concern. Raising capital can also be difficult for these types of businesses.

Limited liability companies

As the name implies, limited liability companies provide some protection against personal liability which is attractive to many business owners. Businesses themselves pay no tax as all taxes are assessed only on distributions to shareholders, referred to as members.

S corporations

Like LLCs, only shareholder income is taxed. This is referred to as pass-through taxation. S corporations are limited to a maximum of 100 shareholders. There are also restrictions on who can own stock in an S corporation. Businesses in need of capital may benefit from a corporate structure. Owners are not personally liable in an S corporation.

C corporations

The most complex of all business structures, a C corporation enjoys great flexibility with the number and type of shareholders it can have. Options for raising capital are great with these businesses. Taxation may be a disadvantage as the business pays taxes and so too do shareholders on all distributions. This is referred to as double taxation.

No perfect scenario

Forbes explains that there may well be no perfect business model. What is advantageous from a tax perspective may not be so from a control perspective and vice versa.

Texas entrepreneurs are encouraged to discuss their needs with an attorney. This can help them better understand the pros and cons of each option and choose the one that works best for their needs.