Determining Business Structure
When you’re thinking about starting your own company, one of the many points to consider is which business structure would be best for your needs.
At the most fundamental level, the factors that influence how to structure a business include:
- Ownership – If you have no partners or investors, you can choose a relatively simple structure.
- Type of business – Entrepreneurs entering into occupations that are high-risk or involve potential liability concerns will want to review business structures’ ability to shield owners from economic loss.
- Workers – Some business structures are ideal for companies that have employees.
- Long-term goals – Some types of structures allow for easier company growth.
If you’re not sure which business structure would be the best for you, the following overview may be helpful. And to be absolutely certain you understand the pros and cons of each, talk to the business law attorneys at Lusk Law, LLC. We can help you establish your business and provide counsel throughout its lifecycle. Contact us today to ask for a consultation: 443-535-9715.
Choosing a Business Structure: The Basics
These are the most common types of business structures:
If you plan to be the only owner/employee, a sole proprietorship may make sense for you. Sole proprietors pay business-related taxes as individuals and can schedule quarterly payments to avoid paying one lump sum each year. One drawback to this structure is that sole proprietors are liable for any harm or damage caused by their company.
The two basic types of partnership are:
- General partnerships – General partners co-manage the company and take responsibility for its debts and expenditures.
- Limited partnerships (LP) – This structure includes a mix of general partners and “limited” partners – investors who have no control over the company and assume no risk or liability.
Maryland defines a third type of partnership: limited liability (LLP). In this structure, at least one partner must be the manager (general partner), and at least one must be the investor (limited partner). Both LLPs and LPs shield business owners from personal liability, except in cases of fraud and reckless conduct.
A corporation is an independent legal entity, which means owners are not liable for the corporation’s actions, and business-related debt belongs only to the company, not the owners. Corporations may sell stock, as well as offer stock options as part of an employee benefits program. This structure is more complex and requires a thorough understanding of applicable regulations. Corporations also tend to need professional accountants, because of the complexity of corporate tax laws.
Limited liability company (LLC)
LLC taxes are based on each owner’s share of the company. So, if you own 100 percent of the company, you pay all of the taxes on your net profit. If you have one equal partner, you’re each responsible for 50 percent of the taxes. LLCs do not have to pay unemployment and disability tax for the owners.
The owner of an S Corp may take a “reasonable” salary from the profits and pay taxes on the remaining profits. Tax complications may occur if the Internal Revenue Service disagrees with the owner about what is a reasonable salary. S Corps owners must pay into unemployment and disability tax
This structure is for companies that can demonstrate “a material positive impact on society; consider how decisions affect employees, community and the environment; and publicly report their social and environmental performance using established third-party standards.”
Entrepreneurs wishing to establish a branch office, franchise, independent subsidiary, joint venture, or C corporation may be subject to additional regulations, especially if their partner/parent company is registered only outside the United States.
Whatever your business needs may be, Lusk Law, LLC, is prepared to help you. We have more than a decade of experience assisting entrepreneurs in Frederick County, Howard County, Baltimore County, Baltimore City, Carroll County, Washington County, Anne Arundel County, Montgomery County, and throughout Maryland. If you need help choosing a business structure, with litigation, or just need general legal counsel, please call us at 443-535-9715 or fill out our contact form.
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