Best Business Entity Formation
One of the most common, and most potentially damaging mistakes a small-business owner can make is failing to separate personal and business funds. Even when accounts are meticulously maintained apart from one another, sole proprietorship poses a big risk to personal funds if something should go wrong. If, for example, someone were to take legal action against the small business, the owner would be liable for any losses. If he doesn’t have enough insurance to cover expenses, his personal assets may be depleted as well.
It doesn’t have to be this way. Logos Wealth can help you develop a legal and best business entity that will protect your personal assets from the financial risks of running a business. You specific business’s needs for legal protection, your financial goals, and tax liability should all be taken into account. You are putting a lot on the line by running a business--there’s no need to risk it all.
Types of Legal Entities
The preferred legal structure for a small business is usually a limited liability company, or a LLC. This is a flexible structure and provides optimal protection against legal claims and taxation. It is similar to a corporation, but it is managed by members, not shareholders. It can also choose the best option for tax purposes, depending on which works best for its individual needs. If there is only one owner, the business can choose to be taxed as a sole proprietor, a C-corporation or an S-corporation. If the LLC has multiple owners, it may choose to be taxed as a partnership, C- or S-corporation.
Other types of businesses may benefit from becoming C- or S-corporations instead of LLC. C-corporations are usually the most complex, and are rarely the most advantageous from a tax perspective; they are mostly used for very large, publicly traded companies. C-corporations pay their own taxes on revenue. Any profits that are distributed to shareholders as dividends are also taxable on the shareholders’ income tax.
S-corporations, properly termed Subchapter S-corporations, have a similar structure to C-corporations but are not taxed on their own earnings. Only the profits distributed to shareholders are subject to the shareholders’ personal income tax.
Logos Wealth advisors can help you choose the best structure for your business and protect you against taxes as well as legal liability. Please give us a call today or click to set up an appointment.