Common Myths About Business Structures
When starting a business, one of the first and most important decisions you will make is what type of structure you will choose for it. There are many different types of business structures and the one you choose will have many impacts on you and your company. Unfortunately, many myths have abounded regarding the different types of business structures over the years. Below, one of our Utah business law attorneys outlines the most common myths about business structures, and the truths behind them.
A Limited Liability Company (LLC) has Significant Tax Benefits
Forming an LLC has many benefits, but they do not necessarily provide a lot of tax benefits. Instead, the biggest benefit is that an LLC is a separate legal entity than the business owner. As such, if the business faces legal action, such as a lawsuit from the creditor, the owner’s personal assets are protected. An LLC can also govern partnerships between two or more owners, known as members within the LLC structure.
Small Business Owners Can Reap Tax Benefits from a C-Corp
Larger companies fit the typical model for C-Corporations, and these larger entities require a structure that allows for greater tax deductions. On the other hand, these tax advantages are not usually available to small business owners. Unless a small business has very high profits that make the company eligible for corporate fringe benefits, small companies will typically benefit more from an S-Corporation.
Corporations Protect Assets Better than LLCs
It is not the business structure you choose that offers asset protection. Instead, it is the procedures you follow, such as not commingling funds, following strict corporate guidelines, and keeping good corporate records that provide the protection of a corporate veil. As long as you follow these best practices, you can ensure your assets are protected whether you structure your business as an LLC or a corporation.
Sole Proprietorships Do Not Offer Any Benefits
Some people view sole proprietorships negatively because business owners are open to unlimited personal liability, limited growth potential, and the difficulties faced when trying to raise capital. Still, sole proprietorships have some benefits, particularly for business owners just starting out. There is no formal filing required and you do not have to pay state fees. Managing the business also requires minimal record-keeping and legal requirements. If your business starts to grow in the future, it is also relatively easy to change to a new business structure. While sole proprietorships can offer some benefits, our firm typically does not recommend this structure for serious business owners.
You Do Not Need to Work with a Business Law Attorney in Utah When Choosing a Structure
There are many websites that claim to help you set up your business for a minimal cost. However, these online portals will not provide the legal guidance and help you avoid common mistakes. At AGS Law, our Utah business law attorney can help you determine which structure is right for you and guide you through the process so your business gets off to the right start. Call us today at 801-477-6144 or contact us online to schedule a consultation with one of our knowledgeable attorneys and to learn more about how we can help.
Source:
utah.gov/business/starting/structure.html
