Congratulations! You have decided to start that business that you have been thinking about for a long time. However, deciding to go into business is the easiest part. Now you must make decisions that will affect your business moving forward. One of the first and most important is the business’s structure.
The type of structure that you choose for your business will determine much of your legal rights and responsibilities in the future. However, do not feel overwhelmed. Today’s blog provides some general information about the different types of business structures, and how a San Antonio contracts lawyer can help you determine the best one for your business.
What are the different types of business structures?
The business structure that you choose for your San Antonio business will affect important aspects of your business in the future. The type of taxes, liability, and paperwork you will be responsible for are all based on your business structure. Your business structure can make the difference between what you are legally liable for if someone files a lawsuit against your business. As your business continues to grow, you may want to change its structure to fit the changing needs of the company.
The four types of business structures in San Antonio and throughout Texas include:
One of the simplest business structures is a sole proprietorship. A sole proprietorship means you are liable for all of the profits and debts that your business acquires. Many self-employed people begin as a sole proprietor. With a sole proprietorship, you do not have to file as much paperwork and are entitled to certain tax deductions.
However, your personal property and assets are not protected under a sole proprietorship. If your business must resolve any debts, your personal assets may come into play. On the other hand, a sole proprietorship is one of the easiest business structures to dissolve.
A partnership is a structure where two people are responsible for the business. Partnerships come in two forms: general and limited. A general partnership is a partnership where all responsibilities of the business are shared equally. A limited partnership is a partnership where one of the partners controls the operations.
Partnerships also have special tax deductions, and you can report any of your business income on your personal income tax returns. You are also more likely to be approved for a business loan through a partnership.
Partnerships offer more choices when it comes to liability. You and your partner can decide to operate as sole proprietors or you can form a limited liability partnership, where your personal liability will be reduced.
Limited liability company (LLC)
A limited liability company (LLC) is one of the most sought-after business structures. This business structure allows owners and partners to limit their personal liability and take advantage of certain tax deductions. It is, for many, essentially the best of both worlds. Under an LLC, the personal properties of the business owners are protected from any debts the business acquires.
As long as it can be proven that a company owner did not operate in a negligent manner while conducting business, the owner of an LLC cannot be held liable for the business’s debts. While the filing fee for an LLC ranges from state to state, the cost can be worth it. One of the benefits of an LLC is that your business does not need to be a certain size to qualify. Here in Texas, filing for an LLC can range between 300 and 750 dollars.
Small businesses and large businesses can form LLCs. In addition to limiting your liability, you also have the chance to pass whatever profit you acquire from your business as income on your tax return. It is like having the liability of a corporation while enjoying the profits of a sole proprietor or partnership.
A corporation is another business structure that reduces your personal liability as a business owner. Under a corporation, the business is its own entity or person. That means that your corporation has the power to sue, be sued, own and sell property as if it were a person. As the owner of your corporation, your personal properties and assets will be completely protected in the event of a lawsuit or the pursuit of a debt.
There are several types of corporations, but two of the most common corporations formed are C corporations and S corporations. A C corporation is a corporation where multiple shareholders are involved in the business. An S corporation is a corporation where the income and losses are directly passed to the shareholders without having to pay federal corporate taxes. Many small businesses form S corporations and take advantage of the tax benefits.
How do I choose the right structure for my San Antonio business?
Choosing the right structure for your business depends on your goals. Do you want to be personally liable for the debts of your business? Do you want to limit your personal liability and reduce the types of taxes your business will have to pay? How large do you see your business becoming? After considering the goals that you want for your business, the next action that you want to take is consulting with a lawyer.
An experienced lawyer can explain in more detail how you will be taxed with each business structure. Your San Antonio attorney can break down each aspect of your business structure, from the types of taxes you will be responsible for to the type of paperwork you will have to file. Your lawyer can also design a strategy to help protect your business as it grows and protect your personal assets in the process.
When it comes to the type of structure for your business, you want to get it right the first time. Talk to a San Antonio lawyer at Grable Grimshaw PLLC to start building the proper foundation for your business. It is important now in the event that your business becomes the central focus of a divorce case down the road. Call our office today at 210-963-5297, or complete our contact form for a free consultation.