The business form Louisianans select for their business is important for many reasons. It can impact the success of one’s business in a number of different ways, including tax consequences for the business, the ability to raise capital or how the company is managed day-to-day. There are a variety of different business structures to consider, and it is important to know which one is best.
A sole proprietorship is a common business form wherein the entrepreneur and the business are viewed as the same legally, and the business owner enjoys complete control over the business. For entrepreneurs who have partners, limited partnerships limit the liability of the partners to the amount of their investment in the company. The general partner in a limited liability partnership, however, has control over the business and unlimited liability for its obligations. While sole proprietorships can face challenges raising financing, limited partnerships may face fewer challenges. Limited partnerships are taxed as pass-through entities, wherein the profits and losses are taxed on the personal tax returns of the partners.
Additionally, limited liability companies, or LLCs, are taxed similarly to a sole proprietorship or limited partnership, in the sense that taxes are paid on the tax returns of the members of the LLC, rather than the LLC being taxed as a separate entity as a corporation. A LLC provides personal liability protection and may also be beneficial for purposes of raising funding. S-corporations can provide similar benefits, while, on the other hand, corporations are traditionally viewed as being doubled taxed because the corporation and the shareholders are both taxed. C-corporations are separate legal entities that completely prevent personal liability. Tax benefits of a C-corporation include deductions for business expenses, but double taxation concerns may arise. Both types of corporations have significant capacity to raise capital through the sale of shares of the company.
Because the business structure one selects has an impact on the growth and success of one’s business, it is important to understand which structure is best for the needs and goals of one’s business. Careful guidance, and trained understanding, can help you arrive at the business form that will set one’s venture off on the best footing to help it succeed.
Source: Foxbusiness.com, “Tax Advantages of Filing as LLC, S-Corp and More,” E.J. Dealy, March 7, 2013