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Archbold Consultants and Accounting is your trusted partner when it comes to new business formation. We understand that starting a business can be both exciting and challenging, which is why we offer comprehensive services to guide you through the process. Our team of experts will assist you in selecting the most appropriate business structure, navigating legal requirements, and completing necessary registrations. With our in-depth knowledge and experience, we ensure that your new business is set up for success from the very beginning. Trust Archbold Consultants and Accounting to help you lay a solid foundation for your entrepreneurial journey.
There are several types of business structures to choose from, each with its own advantages and considerations.
Sole Proprietorship is the simplest form, where an individual owns and operates the business. Sole proprietorships lack distinct business entity status, resulting in the absence of separation between personal assets and liabilities and those of the business. This implies that you can be personally accountable for the debts and responsibilities incurred by the business.
Partnership involves two or more individuals sharing ownership and responsibilities. Limited partnerships consist of a single general partner who assumes unlimited liability, while all other partners enjoy limited liability. Typically, partners with limited liability have restricted control over the company, as specified in the partnership agreement. Any profits generated are passed through to personal tax returns, and the general partner, who lacks limited liability, is also responsible for paying self-employment taxes.
Limited Liability Company (LLC) offers personal liability protection and flexible management options. In most situations, limited liability companies (LLCs) offer protection against personal liability. This means that your personal assets, such as your vehicle, house, and savings accounts, are generally safeguarded in the event of your LLC experiencing bankruptcy or facing lawsuits.The profits and losses of an LLC can be passed through to the personal income of its members, allowing them to avoid corporate taxes. However, it is important to note that members of an LLC are classified as self-employed and therefore must make self-employment tax contributions, which include payments towards Medicare and Social Security.
C-Corporations are separate legal entities with shareholders, providing limited liability but with more complex regulations. C-Corporations provide the most robust protection to their owners against personal liability. However, the formation cost of a C-Corp is higher compared to other business structures. Additionally, C-Corps require more comprehensive record-keeping, operational processes, and reporting. Unlike sole proprietors, partnerships, and LLCs, C-Corps are subject to income tax on their profits. In certain scenarios, c-corp profits may face double taxation, initially when the company generates a profit, and subsequently when dividends are distributed to shareholders and taxed on their personal tax returns
An S corporation, also known as an S-corp, is a unique form of corporation specifically structured to overcome the issue of double taxation that regular C corporations face. S corps enable profits (and certain losses) to be directly passed through to the owners’ personal income, avoiding corporate tax rates altogether. Although the taxation of S-corps may vary among states, most states generally follow the federal government’s recognition and tax the shareholders accordingly. Some states impose taxes on S corps for profits exceeding a specific threshold, while others do not acknowledge the S-corp election and treat the business as a C corporation.
Nonprofit corporations are established with the purpose of engaging in charitable, educational, religious, literary, or scientific activities. Due to the public benefits derived from their work, nonprofits can obtain tax-exempt status, which exempts them from paying state and federal income taxes on any profits they generate. In order to obtain tax-exempt status, nonprofits are required to file with the Internal Revenue Service (IRS). This process is separate from the registration required with their respective state authorities. Nonprofit organizations are frequently referred to as 501(c)(3) corporations, named after the specific section of the Internal Revenue Code (IRC) that is commonly utilized to grant tax-exempt status to such organizations. The designation of 501(c)(3) signifies that the nonprofit meets the criteria outlined in that section of the IRC to qualify for tax-exempt status. Choosing the right business structure is crucial, as it impacts legal, financial, and operational aspects of your business. We recommended consulting with us to determine the most suitable structure for your specific needs.
