New business owners should carefully consider the best legal structure for their company to ensure that their business is set up in the most tax-efficient way and maintain a competitive advantage over the long term. There are many different benefits to each type of business structure. At Gordon Law Group, we want to explore those benefits, so you don’t make any costly mistakes when it comes time to form your company.
A sole proprietorship is the most common form of ownership in the United States. The business owner and the businesses are the same entity, which means that all income is considered self-employment income and subject to the tax of the individual who operates it.
The biggest drawback to this type of legal structure is that it doesn’t provide any separation of personal property from your company’s property. Everything you own can be taken if someone sues your business. A Heber business attorney can walk you through this.
General partnerships have more than one person carrying on trade or business for profit. A partnership agreement determines how partners divide management, sharing of profits, and responsibilities. If one partner leaves the company, they can dissolve the partnership according to the processes initially agreed.
The significant advantage is that all partners are responsible for any debts incurred by the other partners who fail to pay their share of the debt. This fact is also its primary disadvantage. A Heber business lawyer can structure your paperwork to protect all involved.
A limited partnership offers many protections as a general partnership while still providing unique benefits for those invested in it. One of these benefits is pooling risk through legal liability protection with other investors. However, limited partners have few management responsibilities and cannot make decisions on behalf of the company without consent from a higher-ranking company official.
An S-corporation is a corporation that allows income tax to be paid on the company’s profits and not by the shareholders. This ability offers protection for personal assets when compared to a sole proprietorship or general partnership. The biggest drawback is that an S-corporation does not allow more than 100 shareholders, which could limit your ability to raise capital through private equity investors. A Heber City business lawyer can draw up share agreements with all their nuances to protect all involved.
C-Corporations are different from S-Corp because they pay income tax on their profits but then distribute the remaining profits to shareholders, who then report it as personal income and are assessed individual taxes accordingly. These companies do not limit the number of shareholders who can invest, but they are more complex than alternative entities.
A non-profit association is an organization that has been designated as a tax-exempt charitable organization. Once they have received this designation, their primary purpose must be promoting social welfare. Non-profits must be registered with the state, but they do not have to pay taxes on strict donations, grants, and gifts, because they do not earn money by doing anything for the public good.
Non-profit corporations are a classification of non-profits that have been granted the status of being a corporation. Non-profit corporations can be classified in one of three ways: religious, educational, and medical. This classification is more helpful for businesses who want to do social good but plan on being extremely large, have investors, employees, and who might sell and make profits on some parts of their business but not others. Hospitals are a prime example of this. Taxes will be paid on monies received that are considered income in those cases.
A Heber UT Business Lawyer Can Help You Choose Well
The classification that rings true for you most is based on the nature of your business and how much capital is available for investment, the number of partners you’ll have, and more. You should consult with a Heber City Business Attorney or other experienced professional before making any decisions about which legal structure is proper for you.
Contact Your Trusted Heber UT Business Attorney
Living, working, and faithfully serving the Heber City and Heber Valley communities, we at Gordon Law Group want to help you see your business dreams become a reality. Give us a call to schedule an appointment so we can help you properly fill out your formation documents with the State of Utah!