Oak Brook 312.345.6201 | Merriville 219-769-6000 pschimmel@hmscpatax.com

Thinking about starting a business?  One of the most important decisions you will have to make is choosing the type of entity to operate your business.

The following is a list of potential entity options:

  1. Sole Proprietor,
  2. C Corporation,
  3. S Corporation,
  4. Partnership,
  5. Limited Liability Company (LLC)

There are many factors to consider when deciding on what type of entity to setup:

  1. How many owners are there,
  2. Type of owners (individuals, trusts, other businesses, etc.),
  3. Flexibility on allocation of profits and / or losses to owners,
  4. Ability to deduct losses,
  5. Annual cost to maintain the entity with the Secretary of State (annual filing fees)
  6. Income taxes on the operations,
  7. Income taxes on the sale of the business.
  8. Sheltering the owners’ liability.

The above are just a few key factors that will influence your decision on choosing an entity structure. There are pro’s and con’s on the above entity structures, and setting up the right entity is very important.

Just a few examples to highlight your choices include, the above entities are all taxed differently ranging from income taxes, self employment taxes, capital gain taxes, Medicare surcharge tax, and Medicare tax on earned income.  S Corporations have limitation on the number of owners and the type of owners as compared to a Partnership or LLC which can have any type of owner and there is no limited on the number of owners.  The ability to deduct losses will depend on the type of entity you setup.

Generally, either an S Corporation or an LLC are typical the choice of entity structures.  There pro’s and con’s related to both of them.  Also, normally you want to hold real estate in a LLC vs. an S or C Corporation.

The type of entity structure is important not only for the operation of your business, but just as important upon the sale of your business.  Seeking out proper professional advice is the only way to ensure you understand all of your options and ultimately structuring your business entity properly.  You should consult an experienced tax advisor to assist you in structuring your business.

Please contact me with any questions or if I can assist you on choosing a business entity.
Schedule a Free 15-Minute Phone Evaluation (A $62.50 Value).