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What are the Different Kinds of Business Ownership?

June 23, 2021 by Anne Hunt

There are several kinds of business ownership in the United States, but the most common by far are sole proprietorships, limited liability companies (LLCs), and corporations.Here is some more information on the options you have as a business owner, including hiring legal help, such as a riverside business attorney.

Understanding which type of business ownership is the most appropriate for your business activity is critical. Knowing your options can help you manage your liabilities as a business owner and understand factors like how you are taxed, whether you can accept external funding, and how you compensate your employees.

Sole Proprietorships

Sole proprietorships are the most common kind of business ownership, accounting for 73% of all US businesses (around 23 million people). A sole proprietorship automatically exists as soon as you undertake business activity not covered by another entity type.

With sole proprietorships, there is no legal difference between the business owner and the business itself. While attractive because there are so few restrictions and compliance requirements, this does mean that if the business gets sued, there is no legal protection of the owner’s personal assets (like their house, car, or savings).

Without a formal legal structure, it is near impossible to raise money as a sole proprietor.

Limited Liability Companies

Limited liability companies (LLCs) are also very common. LLCs are easy and relatively cheap to form, and management is simple because reporting requirements are minimal. Another compelling benefit is the ability to choose various tax models, which ensures tax efficiency.

However, one potential downside to an LLC is that many states levy different fees and taxations on LLCs depending on their activities and where they serve customers, which can get expensive.

Corporations

Corporations are less common than other entities yet remain an important option for business owners, especially if you are considering raising funds. It is more complex and typically more expensive to form a corporation, yet come tax time, there can be considerable tax savings that offset these earlier costs.

‘S’ Corporations allow you to pass profits through to the shareholders and get taxed there, which avoids the “double taxation” of income being subject to corporation taxes and to shareholders’ income taxes.

On the other hand, ‘C’ Corporations pay corporation tax but can claim many expenses (such as salaries, healthcare, travel, and entertainment) not able to be deducted elsewhere.

Contact a Business Attorney

If you need help determining what kind of business ownership is right for you, get in touch with the experts, like a Riverside business attorney at the Mellor Law Firm, today. These expert attorneys are leaders in their field and can advise how best to structure your business for optimum liability management and tax efficiency.

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