Shahara works with clients to choose the right business structure. Specializing in business structuring. There are many ways to structure your business depending on budget, risk appetite and tax implications. Corporate structures can range from simple to complex. Whatever the needs of your business, The Wright Firm can help.
The most common business entities are:
- Partnerships
- Limited Liability Companies
- Corporations
- Nonprofit Organizations
Check out Choosing the Right Business Entity to learn more about business entities and formations for your small business. For more information about pricing and how to work with The Wright Firm, PLLC, Contact Me!
Business Structuring FAQs
- Ownership and Management structure: It is important to consider how the company will be owned and managed. A single owner with no investors is different from a company with multiple owners who have a few people that will run the company. It is important to understand what the needs of the company will be now and in the next 3-5 years.
- Liability: It is important to consider what is at risk. If your business is one that serves children, hosts conferences or activities, or manufactures a product, these are all high liability areas which need to have sufficient liability protection to protect the business.
- Tax implications: The tax implications of a corporate structure can vary depending on the structure. It is important to consult with a tax advisor to understand the tax implications of the different corporate structures before making a decision.
- Desired level of control: The desired level of control can also be a factor in choosing a corporate structure. A simple corporate structure gives the shareholders more control over the business. However, a complex corporate structure can give the shareholders less control over the business, as the control may be dispersed among the different entities in the structure.
There are many different business structures to choose from, and the best structure for you will depend on your specific circumstances. Some of the most common business structures include:
- Sole proprietorship: A sole proprietorship is the simplest business structure. It is a business owned and operated by one person. The owner of a sole proprietorship is personally liable for the debts and liabilities of the business.
- Partnership: A partnership is a business owned and operated by two or more people. The partners in a partnership are personally liable for the debts and liabilities of the business.
- Limited liability company (LLC): An LLC is a hybrid business structure that offers the limited liability of a corporation and the pass-through taxation of a partnership. The owners of an LLC are called members, and they are not personally liable for the debts and liabilities of the business.
- Corporation: A corporation is a separate legal entity from its owners. The owners of a corporation are called shareholders, and they are not personally liable for the debts and liabilities of the business.
Here is a table that summarizes the key differences between these four business structures:
| Business Structure | Liability | Taxation | Ownership |
| Sole proprietorship | Owner is personally liable | Owners’ taxable rate. | One person |
| Partnership | Partners are personally liable | Partners’ taxable rate | Two or more people |
| Limited liability company (LLC) | Members are not personally liable | Can be either the owners’ taxable rate or the Corporate income. | One or more people |
| Corporation | Shareholders are not personally liable | Corporate income | One or more people |
The best way to choose a business structure is to book an appointment with me to help you understand the different options and choose the structure that is right for you.
A limited liability company (LLC) is a business structure that offers the limited liability of a corporation and the pass-through taxation of a partnership. The owners of an LLC are called members, and they are not personally liable for the debts and liabilities of the business.
LLCs are a popular business structure for small businesses because they offer a number of advantages, including:
- Limited liability: The members of an LLC are not personally liable for the debts and liabilities of the business. This means that if the business is sued, the member’s personal assets are not at risk.
- Pass-through taxation: The profits and losses of an LLC are passed through to the member’s personal tax returns. This means that the members pay the tax, not the company. In some cases, this is more beneficial for the members.
- Flexibility: LLCs are a flexible business structure. The members can customize the operating agreement to fit their specific needs.
Business structuring is important because it can help to protect your personal assets, minimize your tax liability, and make it easier to raise capital.
Here are some of the reasons why business structuring is important:
- Limited liability: When you structure your business properly, you can limit your personal liability for the debts and liabilities of the business. This means that if the business is sued, your personal assets are not at risk.
- Taxation: The way you structure your business can affect your tax liability. For example, if you structure your business as a corporation, you may be able to take advantage of certain tax deductions and credits that are not available to sole proprietorship or partnerships.
- Capital raising: The way you structure your business can also affect your ability to raise capital. For example, if you structure your business as a corporation, you may be able to issue shares of stock to investors. This can be a good way to raise capital to grow your business.
The tax implications of each business structure vary depending on the structure itself and the specific circumstances of the business. However, there are some general principles that apply to most business structures.
Here is a brief overview of the tax implications of some common business structures:
- Sole proprietorship: A sole proprietorship is a business owned by one person. The owner of a sole proprietorship is personally liable for the debts and obligations of the business. The profits of a sole proprietorship are taxed on the owner’s personal income tax return.
- Partnership: A partnership is a business owned by two or more people. The partners in a partnership are personally liable for the debts and obligations of the business. The profits of a partnership are taxed on the partners’ personal income tax returns.
- Corporation: A corporation is a business that is legally separate from its owners. The owners of a corporation are called shareholders. The shareholders of a corporation are not personally liable for the debts and obligations of the corporation. The profits of a corporation are taxed twice, once at the corporate level and then again when the profits are distributed to shareholders as dividends.
- Limited liability company (LLC): An LLC is a non-incorporated entity that provides liability protection for the owners. The owners of an LLC are called members. The members of an LLC are not personally liable for the debts and obligations of the LLC. The profits of an LLC can be taxed as a corporation, a partnership, or on the members’ personal income tax returns.
The best business structure for you will depend on your specific circumstances. If you are unsure which business structure is right for you.
The process for changing your business structure will vary depending on the type of business you have and the state in which you are located. However, there are some general steps that you will need to take:
- Decide on a new business structure. Before you can change your business structure, you will need to decide on a new one. Consider the factors that are important to you, such as liability protection, tax implications, and scalability.
- File the necessary paperwork. Once you have decided on a new business structure, you will need to file the necessary paperwork with the state. This paperwork will vary depending on the state and the type of business you are changing.
- Update your business documents. You will need to update your business documents, such as your operating agreement, formation documents, and tax returns. This will ensure that your business is properly registered and that you are in compliance with the law.
- Notify your creditors and customers. You will need to notify your creditors and customers of the change in your business structure. This will help to avoid any confusion and ensure that your business relationships are not disrupted.
- Make any necessary changes to your business operations. Depending on your new business structure, you may need to make some changes to your business operations. For example, if you are changing from a sole proprietorship to a corporation, you will need to set up a board of directors and establish corporate bylaws.
Changing your business structure can be a complex process, so it is important to consult with me to ensure that you are following the correct procedures.
There are a number of risks involved when changing your business structure. Some of the most common risks include:
- Legal risks: Changing your business structure can have legal implications, such as changes to your tax liability, liability for debts, and employment laws. It is important to consult with an attorney to ensure that you are aware of the legal implications of changing your business structure.
- Financial risks: Changing your business structure can also have financial implications, such as the cost of setting up a new entity, the cost of legal fees, and the cost of changing your contracts and other business documentation. It is important to carefully consider the financial implications of changing your business structure before making a decision.
- Operational risks: Changing your business structure can also have operational implications, such as changes to your reporting requirements, changes to your accounting systems, and changes to your internal controls. It is important to carefully consider the operational implications of changing your business structure before making a decision.
- Employee morale risks: Changing your business structure can also have a negative impact on employee morale. Employees may be concerned about their job security, their future roles in the company, and the overall impact of the change on the company. It is important to communicate with employees openly and honestly about the reasons for the change and the benefits of the change.
If you are considering changing your business structure, it is important to carefully weigh the risks and benefits of the change.