There are many types of businesses that business owners can establish when they decide to have a new venture. There are five major types of businesses, a sole proprietorship, a multi-person proprietorship, a S-Corp, a C-Corp, and a LLC. The primary differences in these different types of businesses are the liability structure and the business tax structure.
As a general rule, the more liability that you want to take off from you and the more shareholders you would like to have in a company, the more you will have to pay in taxes, even to the point of paying separate taxes. For example, corporations, by definition, are people, so one has to pay personal taxes as well as taxes on the corporation. On the other hand, with a sole proprietorship, you only have to pay one set of taxes, but you also carry all the weight of a liability. Other forms, like a LLC, which is a common business type for new businesses, has separate liability and a single tax, but there are limitations to these type of models as well.
Then what type of business should you establish first. A common rule of thumb is for most people to start as a LLC because of the liability and business taxes. It is a common belief that getting liability off the individuals is more important than the taxes imposed on businesses as their company gets bigger and their profits increase. Business taxes will increase in proportion to profits up to a certain point before leveling off, so do not change your business until you know that number can be reached. Contact us today for more information on how you should start your business and navigate the world of business taxes.