Which Type of Business Entity Is Right for My Connecticut Company?
Jan. 14, 2021
When starting a business in Connecticut, one of the most overlooked issues is how to structure the business. The business entity that you choose will have a profound impact on your rights and responsibilities as a business owner. The way your business is taxed, the liability you expose yourself to as a business owner, and several other critical issues are affected by the business entity you select. Choosing the wrong business structure can lead to considerable financial and legal problems.
Deciding how To Structure Your Business
There are many different things to consider when choosing a business entity. One of the most significant differences between LLCs, partnerships, and other business entities is the degree to which the business owner’s personal assets are at risk. This is a major issue to consider when starting your business. You should also consider the tax implications of different business structures and whether you plan to share ownership with one or more individuals.
Types of Business Entities
There are five main categories of business structures available to you. Researching the different types of business structures and discussing your options with other business owners can help, but a business law attorney can give you personalized guidance based on your unique business goals and personal preferences. There are pros and cons to each entity type:
Sole Proprietorship: Setting up a sole proprietorship is simple. If you structure your business as a sole proprietorship, all of the revenue and losses pass through to your own personal taxes. You are also liable for the business’s financial obligations.
Partnership: If you wish to share ownership of your business with one or more individuals, you may wish to set up your business as a partnership. Partners are personally liable for the business and any debts it incurs. Business income is reported on the partners’ personal tax returns.
C-Corporation (C-Corp): If you form a C-Corp, you create a business entity separate from you and other owners. You are not personally liable for the business’ obligations. However, the cost of creating a C-Corp is often higher than other business structures.
S-Corporation (S-Corp): This corporation differs from a C-Corp in that profits are passed through to the owners’ personal income. S-Corps are subject to special rules and limitations.
Limited Liability Company (LLC): The main advantage of an LLC is that it protects the owners from personal liability in most situations. However, the cost of starting an LLC is usually more than that of a general partnership or proprietorship.
Contact a Connecticut Business Lawyer
At the Law Offices of Peter V. Lathouris, LLC, we understand the obstacles new business owners face. Our experienced team is equipped to help with start-ups, buying or selling a business, business entity formations, and much more. Call our office today to arrange a free consultation with our knowledgeable Stamford, CT business law attorney.