What are the different forms of businesses and what are the advantages and disadvantages?

Answer 1

Kevin,

A sole proprietorship has the least amount of expense and headaches to setup and operate, but the also the least amount of liability protection. If you go bankrupt as a SP you must declare personal bankruptcy. Income and losses are taxed to you personally and also completely subject to Self Employment tax of 15%.

An LLC is an option that offers liability protection and is an organization that is more difficult to set up and operate than an SP but less than a Corporation. Income is taxed on your personal tax return as a "pass through". These taxes may be higher if you have income right away, but if you have losses they are deductible against ordinary income on your tax return. SET is due on your salary, but not necessarily on company profits.

An S- corporation has the same tax status as an LLC but is more complicated to setup and operate. If offers liability protections.

A C-Corp is the most complicated to setup and operate, but income is taxed at the corporate rates which can be less than the personal rates. If you sell assets from a C -Corp and then want the money for yourself, it will be taxed twice - once in the corp and once personally. But if you sell the entire business, you get the lowest possible tax rate, capital gains tax, currently 15%.

In short if you will have early losses and need liability protection do an LLC. If you will have a substantial business with lots of profits especially early on, do a regular C Corp. If you're dabbling here and have no real expectation of a meaningful business - do a Sole Proprietorship.

Good Luck,
Dana B - President

Answer 2

1. Sole proprietorship. Easy to start up but doesn't provide any personal property protection from lawsuits or failure of the business. When owner dies, the business dies with it.

2. Partnership. Similar to sole proprietorship, except there are two owners of the business.

3.Corporation. Must register with state to become legal. Considered a separate entity which prevents personal lawsuits of the owner(s). Can raise capital through selling of stock(s)/bond(s). Corporations, however, face double taxation and higher government regulations.

4. LLC (Limited Liability Corporation). Similar to a partnership, except that the partners are shielded from personal liabilities of the business. Also face double taxation.

5. Non-Profits. Similar to Corporations, except due to its' non-profit status, doesn't face as much taxation.