When starting a business, deciding on what business structure is right for the company is an important consideration. Choosing a business structure should be based on the needs and goals of the business. Business structures can also be changed if necessary but it is important to have as much information as possible when first selecting a business structure that will help support the goals and success of the company.
One of the most common business structures is the C-corporation, or C-corp, which is a general corporate structure. A C-corp can have an unlimited number of stockholders. Because of this, it is often the chosen business structure for companies that intend to have greater than 30 stockholders or plan to have a large public stock offering. It is important, and useful, to keep in mind that corporations are considered separate legal entities and, as a result, the liability of a stockholder is typically limited to the extent the stockholder has invested in the company.
Another type of corporation is a Subchapter-S corporation, or a Sub-S corporation, which enjoys a special tax status following the corporation’s formation. A Sub-S corporate business form allows for the company to be taxed as if it were a sole proprietorship or partnership. Because of this, the Sub-S corporate form may be preferred by small businesses and entrepreneurs of a start-up company. Businesses owners seeking to avoid what is sometimes referred to as “double taxation” may prefer the Sub-S corporate structure.
A limited liability corporation (LLC) is another business form that may be preferred by a business owner or entrepreneur. LLCs offer the advantage of limited liability protection common to corporations in combination with the taxation advantages of a sole proprietorship or partnership. In addition, LLCs offer greater flexibility concerning business organization; management structure; ownership and ownership restrictions; as well as some other useful advantages. Starting a company is a big step and a business form should be thoughtfully selected based on the needs and goals of the business, as well as a careful knowledge of the business forms available.
Source: Nasdaq, “Understanding Business Structures,” accessed on Jan. 11, 2015