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Starting a Small Business 

Q  What form of legal ownership is best?

A In determining the best form of ownership you need to consider how many owners there will be, how complex the management structure of the business will be, liability and tax implications. Contact a tax accountant and an attorney to discuss your needs.

Here are the basics:

  • Sole Proprietorship: The simplest and most common form of ownership. A sole proprietorship is owned by an individual (or married couple). It may have employees. Operating as sole proprietorship means that the owner is personally responsible for all the liabilities of the business. For federal income taxes, the business is taxed at the personal level for all profits generated by the business. The business does not have to file a separate tax return.
  • Partnership: Two or more people agree to share ownership of a business. Owners share, and pay personal taxes on the profits of the business. Each partner is individually responsible for the liabilities of the business.
  • Limited Liability Company (LLC): is a combination of the corporate form of ownership in that it provides limited liability and the partnership, which allows you to be taxed as in a partnership.
  • Corporation: A corporation is a separate legal "person," wholly apart from the individual shareholders who own it, and limiting the liability for the owners.
  • C-Corporation: Most large businesses operate as C-corporations. A C-corporation may have different classes of stock (such as common and preferred) and an unlimited number of shareholders. A C-Corporation files its own federal tax return in which corporate profits are taxed and then the owners are taxed on their share of the profits.
  • Subchapter S Corporation: This form of corporation is limited to one class of stock, and a limited number of shareholders. An S-corporation does not pay a corporate tax.

Further information on ownership options is available via our Licensing section.

 


 

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Page last updated: October 11 2013

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