Adjusted for seasonal variance, projected Business Formations (within 4 quarters) for August 2021 were 31,994, a 4.5% decrease from July 2021. The anticipated business formations are forward-looking, predicting the number of new business beginnings that will emerge from a given month’s cohort of business applications. It does not give an estimate of the overall number of new businesses that appeared in a given month. In other words, the Census Bureau estimates that out of all the company applications filed in August 2021, 31,994 new business beginnings with payroll tax responsibilities will arise within four quarters.
Everything from day-to-day operations to taxes and how much of your personal assets is at stake is influenced by the business structure you choose. You should pick a business structure that provides you with the correct mix of legal protections and advantages.
Below we will discuss three of the top business structures prefer by U.S entrepreneurs:
Corporation
The Really Useful Information Company (TRUiC) defines a corporation as a legal entity governed by a board of directors and owned by its shareholders. Many of the same rights apply to corporations as they do to individuals. They have the ability to own property, make contracts, borrow and lend money, and sue and be sued. Corporations are formed by small enterprises to attract investors and give limited liability protection.
To protect their personal assets, most small business owners should incorporate a distinct legal entity. Limited liability protection is what it’s called, and it protects a business owner from being held personally accountable in the event of a lawsuit or bankruptcy. Small enterprises and startups that rely on investors may consider forming a corporation. This is due to the differences in how corporations and LLCs are taxed.
Investors are attracted to corporations because they are only taxed on the distributions (dividends) they get from the company. Even if the investor does not get distribution, they will be taxed on their percentage of the earnings (based on ownership interest). When it comes to transferring investment interest in an LLC, LLCs might be difficult for investors. This is made simple by corporate shares.
Limited Liability Company (LLC)
According to the definition of LLC, a limited liability company (LLC) can be defined as a type of business structure in the United States that combines the personal liability protection of a corporation with the taxation benefits of a sole proprietorship or partnership. LLCs are popular because they allow business owners to avoid the double taxes and administrative overhead of forming a corporation while still preserving their personal assets. One or more people, known as LLC “members,” can own an LLC. A single-member LLC is a single-member LLC, while a multi-member LLC has more than one owner.
Organizing your company as a limited liability corporation (LLC) benefits you in the following ways:
- Protect your personal assets in the event that your company is sued.
- When compared to companies and other legal entities, there is less paperwork
- Avoid double taxation for your business
- Make your company more credible in the eyes of customers and creditors
Sole Proprietorship
A sole proprietorship is an unincorporated business that is not legally distinct from its owner. Profits and losses are declared on a person’s tax return, and the business owner is personally liable for all debts and risks.
Small firms that meet the following criteria should form a sole proprietorship:
- They have to be low-profit and low-risk at the same time (low chance of liability or financial loss)
- They cater to a smaller group of customers, who are frequently friends, family, and neighbors
- They can begin as a pastime, such as photography, blogging, or video streaming
Because a sole proprietorship isn’t a separate legal entity, checks, contracts, and leasing agreements are usually signed in the owner’s name. Payments made to a sole proprietorship are also made out in the name of the owner.
You can register a “doing business as” name (DBA) for your company if you run a sole proprietorship and want to do business under a different name. You can even open a company bank account and receive payments using your fictional identity if you have a DBA.
Final Thoughts
When comparing the general traits of the above mentioned business structures, one should remember that ownership rules, liability, taxes, and filing requirements for each business structure can vary by state. Weigh up the advantages and disadvantages of each structure in accordance to your specific business needs when choosing a structure.
You may be interested in: Business Formation Guide: Choose a Business Structure
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