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Protect a new business and its’ founders with the right structure

Starting a new business is exciting. The founders turn their dream into a reality and pour their hearts into this new endeavor. Bearing this in mind, many owners think of the business as an extension of themselves, so it is smart to protect it - as well as themselves - from any legal issue that might come up. Considering that 80% of businesses survive their first year, and 50% make it to five years, smart decisions can protect owners now and in the future.

Looking to the future

It is essential to have goals and use these to pick the best business structure for the owners and their business. Here are five options:

  1. Sole Proprietorship: A sole proprietorship is a standard and easily managed structure for small businesses. It allows the owner to keep full managerial control of their business. There are no corporate tax payments under this plan. The structure is also one of the easiest to keep up with its reporting requirements. However, a sole proprietorship has very little personal protection from liability, so that the owner is personally liable for debts and financial obligations.
  2. Limited Liability Corporation: An LLC is crucial for protecting personal property and assets from the liability incurred by a business. However, the liability protection under an LLC does not prevent the owner from being sued for negligence or misconduct.
  3. S Corporation: The main benefit of a corporation is reducing personal liability. Corporations are more expensive to form and need more management. An S Corporation is similar to a partnership when it comes to taxes. Any owners can report any profits or losses as a part of their income tax. The S Corporation has an advantage over C Corporations with fewer tax obligations.
  4. C Corporation: This is the corporate structure that is known for 'double taxation.' Investors favor a C Corporation because stocks can be distributed within this structure, and employee benefits can be deducted from corporate taxes.
  5. Partnership: The main incentive of a partnership is that any tax obligations are split amongst the partners through their income taxes. The partners are all liable for any debts and can be held personally accountable for lawsuits and fines.

Staying in control

The decisions founders and owners make now will have repercussions on their business’s growth. Owners want their business to thrive, but they should be careful about legal and financial exposure. An attorney experienced in business development and entrepreneurial ventures will be able to help turn that dream into a reality.

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