For the love of your business

The Pros and Cons of Sole Proprietorships, LLCs and Corporations

Business Entity Structure / Business Finances / Save on Your Taxes / Starting Your Business / Unexpected Business Risks

Starting your own business?  One of the first things you will need to do is to decide what type of business entity is best for you.  There are pros and cons to each and it is advisable to consult with a Family Business Lawyer™ before you make your decision:

Sole Proprietorship – nearly three-quarters of all American businesses are run as a sole proprietorship; here are the pros and cons:

Pros:  Easy to start, owner keeps all profits, business income is taxed as personal income, business can be disbanded easily.

Cons:  Owner is liable for all business debts and therefore personal assets are vulnerable to creditors, can be difficult to raise investment capital, business does not survive the owner.

Limited Liability Companies (LLCs) – owners become “members” of this legal entity, which offers the taxation benefits of a sole proprietorship with the limited liability protection of a corporation.

Pros:  Owners are protected from personal liability for business debts and legal claims against the business, business income is taxed as personal income, flexibility of ownership.

Cons:  LLCs are not recognized in every state, owners not obligated to consult with other owners for certain business transactions.

Corporation – a corporation is an entity that is entirely separate from its ownership, with its own legal rights.

Pros:  Owners are protected from personal liability for business debts and legal claims against the business, shares of stock can be sold to raise capital, easy to transfer ownership, can outlive original owners.

Cons:  Owners must pay taxes twice – on the corporation’s income and the income earned personally from the corporation, must pay capital stock tax, complex regulatory environment.

If you’re a small or mid-size business owner, contact a Family Business Lawyer™ today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.  Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee. 

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