Understanding Structures for Your New Business

If you are starting a new business, it is important to give careful consideration to the legal structure you want to use when setting it up. Selecting the right business structure can ensure that your business is protected from certain tax implications, and allows you to retain a competitive advantage in the years to come. There are many different types of business structures and each has their own advantages and drawbacks. Below, one of our Utah business law attorneys explains further.

Sole Proprietorships 

Sole proprietorships are the most common type of business structure in the country. In this type of business structure, the business and the business owner are the same entity. Any income generated by the business is classified as self-employment income and as such, the business owner is responsible for paying those taxes. The biggest disadvantage with a sole proprietorship is that there is no separation of the property of the business and that of the owner. As such, personal property is at risk if the business is sued.

General Partnerships

A partnership refers to a business that has more than one owner. Partnership agreements in these types of structures are of critical importance. They determine how partners share profits and responsibilities, and they also establish how partners will manage the business. A partnership agreement also outlines procedures for dissolving the partnership in the event that one partner leaves the business.  The biggest advantage is that each partner is responsible for the debts not paid by other partners. This, however, is also the biggest drawback of partnerships.

Limited Partnerships 

Limited partnerships offer many of the same protections as general partnerships. They also have unique benefits. One of these is that any risk of legal liability is pooled with other investors. Still, limited partners have limited management responsibilities and they cannot make business decisions without first obtaining consent from a high-ranking executive within the company.

S-Corporations 

S-corporations allow income tax to be paid by the profits of the business and not by the shareholders. This protects personal assets when compared to general partnerships and sole proprietorships. The biggest disadvantage is that S-corporations do not allow over 100 shareholders, limiting the ability to increase capital through private equity investors.

C-Corporations

 C-corporations differ from S-corporations because income tax is paid on the profits but the remaining profits are distributed to the shareholders. The shareholders must then report their share as income on their personal tax returns and pay the taxes accordingly. There is no limit to the amount of shareholders within a C-corporation, but this type of structure is more complicated than other types of business structures.

Our Business Law Attorneys in Utah Can Advise You of Your Legal Options 

At AGS Law, our Utah business law attorneys can further explain the different types of business structures, help determine which one is right for you, and help you establish your company so you are off to the best start possible. Call us now at 801-477-6144 or contact us online to schedule a consultation with one of our experienced attorneys and to learn more.

Source:

utah.gov/business/starting/structure.html