Basis Basics: Planning for Taxation in S-Corporations

For anyone who wants to start a business, there are a few things that must be kept in mind before starting, or at least in the beginning stages of development. You must ask yourself exactly what kind of business you want to create and then find out which legal business structure is the best for your particular situation.

There are four basic structures for a business, each of which carries its own legal, tax, and business requirements. These structures are the Sole Proprietorship, the Partnership, the Corporation, and the Limited Liability Company (LLC). Even if you are just considering long term possibilities, it is a good idea to be familiar with what each of these structures entail.

A sole proprietorship is a business that is solely owned by one individual. He does not have to register with the state is some places. Legally, the business and the individual are inseparable, meaning that when he files for taxes, the business income is also his income. Personal assets can be put at risk with this particular setup.

A partnership is a business that is owned by two or more individuals. Typically, partners own equal share in the company. Like a sole proprietorship though, legal and tax implications are personal, but divided among the many owners.

Limited partnerships are set up in a slightly different way. In a limited partnership, a primary partner manages the business, handling day-to-day operations. Simultaneously, he solicits investments from other individuals who are "limited partners."

The main attraction to corporations and LLC structures is that these forms of business eliminate the personal risk of legal and tax implications. In the case of a corporation, the corporation is considered to be a separate legal and tax entity.

The structure of a business is extremely important. If you would like advice on what is the best business structure for your company, contact the Minneapolis Busines Lawyer of the Skjold ▪ Barthel firm at 612.746.2560.