Whether you are planning to start your home based business or just buying any existing
business you would know that in case of failure people may sue you. That is why selecting right type of business is far most important in your business startup. There are many types of business entity you may apply for, and each has advantages and disadvantages. We recommend you to Please consult with your attorney or accountant about it before making a final decision.
Below you will find description of each type of business entity.
C corporation
Corporation (also know as C corporation) is a separate legal entity owned by shareholders. This type of business entity prevents owners to become personally liable for their business debts. Shareholders would only become personally liable to the extent of their investment in the company. Its formation is simple. You need to file Article of Incorporation (In some States also know as Article of Formation) with the secretary of state in which your business is physically present and paying the related filing fees.
S corporation
Sub chapter S corporation is a corporation that has elected a special tax status with the IRS. This is suitable for small size business. If you create S Corporation then shareholders will pay taxes on their profit and loss from business. Tax will not be charged on corporation"s Net profit. This is called "pass-through" entity. Any tax due is paid by shareholders at their individual tax rates.
Limited Liability Company (LLC)
Limited Liability Company as the name suggests LLC limits the liabilities of owners. It combines the advantages of corporation and partnership. LLC reflects the corporate advantage of limited liability protection with the partnership advantage of pass-through taxation. With this tax status, the LLC's income is not taxed at the entity level; however, the LLC typically completes a partnership return if the LLC has more than one owner. Like corporation income is not taxed at entity level. Profit or loss determines on the basis of ratio and then tax will be passed through on individual owner"s return.