What type of business is best for you: LLC, corporation, or sole proprietorship? This article takes a closer look at various factors and how they relate to each of these types of entities so that you can make the best decision for your situation.

Start-up costs

Filing fees are always location dependent, but generally speaking, filing fees will be higher for corporations and LLCs than for sole proprietorships.

Sole proprietorships will generally apply in the county in which they are located, although in some locations the application is at the state level (and in only a few locations, at the city level). Filing fees can be as low as $ 5 or as high as $ 120, depending on your location.

Corporations and LLCs, on the other hand, could have a filing fee of between $ 30 and $ 300, depending on the location. Non-profit corporations generally have a reduced filing fee.

Limited liability protection for homeowners

An LLC (which stands for Limited Liability Company) and a corporation provide limited liability protection to their owners; If the business defaults on a loan, as long as the business has obeyed all local, state, and federal rules and regulations and acted correctly, the owners are not financially responsible for the debts or obligations of the business, and the corporate assets of those owners cannot be seized by the courts to pay for them.

A sole proprietorship, on the other hand, does not provide this kind of protection. There is no legal separation between the company and the person; If the business defaults on a loan, since it is actually the sole proprietor whose name is on the loan documentation, that person is responsible for paying it back.

Tax structure

A sole proprietorship must pay a self-employment tax of 13.3% (reduced in 2010 from 15.3%); a part of this tax goes to Social Security and a lesser part to Medicare. Only the first $ 106,800 of your income must pay Social Security tax.

However, LLCs and corporations are not required to pay self-employment tax. Each of these business structures has a decision to make. There are two different tax structures for a corporation: the C corporation and the S corporation, and LLCs also have tax structure options to make (although for LLCs, the options depend on whether the business is a single or multi-LLC. owner).

Understanding tax responsibilities is extremely important, as choosing the wrong organizational structure for your business can negatively affect your bottom line. It is always best to discuss your business options with an attorney or legal advisor.

That I have to do?

At the end of the day, it’s important to weigh all of these options carefully before making a decision. It’s easy to superficially look at the filing fee involved and go from there, but since this isn’t your only real business expense, acting on the filing fee alone is just looking at a part of the picture.

As with all business decisions, it is best to consult with your legal advisor before making a hasty decision so that you know that you are weighing all the factors.

Good luck!

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