Business Entities - Part 1
Thinking about starting your own business at the Lake of the Ozarks? You have a lot of important decisions to make! As an entrepreneur, you will likely have to dedicate more time to your up-and-coming company than anything else in your life (possibly even more than your family). With so much of your precious time at stake, it is imperative that you take proper steps to ensure that your business is established and run correctly.
For those of you considering establishing your own company in the near (or distant) future, it is never too soon to start evaluating your options. One of the biggest decisions you will face will be deciding how to incorporate your business. Here is a quick overview of some of the different types of business entities you can choose from, courtesy of our business attorneys at the Lake of the Ozarks.
General Partnership & Sole Proprietorship
Sole proprietorship and general partnership are two common options new entrepreneurs have available to them as they determine how to incorporate their business. In a sole proprietorship, one single person has complete control over the company. In a general partnership, two or more people have joint ownership over the company and must work together on every business decision.
A sole proprietorship, however, doesn't provide any insulation from liability of the owner and profit and loss from the business are reported on the proprietor's personal tax return. A general partnership does provide some liability insulation and as a sole proprietorship, income is typically reported on the partner's individual returns.
A general corporation (or "C-Corp" ) is a business entity that comes with several requirements in order to be properly maintained. For example, in order to be considered active, a Board of Directors must be appointed to hold annual meetings, create bylaws, create stock certificates and maintain a stock ledger, and record minutes from the meetings. C-Corps typically have several different shareholders who acquire ownership by investing in company stock.
The biggest advantage of C-Corps is that they protect their owners from personal liability. The company can sue and be sued, but the owners will not be personally responsible for any of these actions. Consequently, however, this requires C-Corps to be taxed on company income as well as the shareholders' individual incomes. This "double taxation" is the main disadvantage of C-Corps.
Subchapter S Corporation
Subchapter S Corporations (or "S-Corps") are treated very similarly to C-Corps, but with one major difference: S-Corps are not subject to the double taxation that C-Corps are. S-Corps are small business elections with the IRS, which allows the income to pass directly through to the shareholders to be reported on their personal returns.
In order to be eligible to be an S-Corp, the company and the shareholders must meet certain qualifications. For example, there can only be one class of stock, no more than one hundred shareholders, and all of the shareholders must be U.S. citizens.
That's Not All!
There are several other types of business entities that entrepreneurs have to choose from. Watch for our blog next week to learn what some of these other options are - and what the most popular business entity is!
If you are ready to move forward or if you have other questions about the process, contact our firm to set up an initial consultation with one of our Missouri business lawyers. We would be happy to help you out with the process.
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