The structure of a business that the owner chooses has lasting implications. It affects the amount of tax liability, personal liabilities, ability to raise funds, and the amount of paperwork needed to file to start the business.
Before an owner registers a business with the state of Utah, they will need to decide which structure best suits the needs of their company. Choose carefully! Receiving advice from local attorneys would prove helpful in consequential decisions such as this.
Let’s get a brief overview of the options:
A sole proprietorship is easy to form and gives the owner complete control of the business. A separate business entity is not produced, and therefore business assets and liabilities are not separated from personal assets and liabilities. Sole proprietorships are good choices for low-risk businesses and owners introducing new ideas or testing markets before becoming a formal business.
A partnership is when two or more people have ownership over the business and are granted unlimited personal liability unless structured as a limited partnership. Partnerships have a self-employment tax (Social Security and Medicare), are personally associated with them, and are one of the simplest of all business structures to set up.
There are several different types of corporations including C-Corps, S-Corps, B-Corps, and Nonprofits. In each case, the owner (or owners) of the corporation are not personally liable for corporate liabilities. Corporations offer the most protection from personal liability but are also the highest in cost. They typically require extensive bookkeeping and pay the most in taxes.
Limited Liability Corporation (LLC)
An LLC is the hybrid of a partnership and corporation. They are a good choice for riskier businesses, where owners have a desire to protect their personal assets in the case of bankruptcy or lawsuit. A personal tax rate is often favorable to a corporate tax rate in the case of small business making this a desirable option for many.
Professional Limited Liability Corporation (PLLC)
A PLLC is in many ways the same as an LLC, the key difference being that the owners share a profession. Lawyers, accountants, and other similar companies usually choose to be a PPLC because of the combination of corporation liability shield and tax benefits of a partnership. A PLLC has the same listening as an LLC, but a state licensing board must approve the licenses of all owners.