Choosing the structure of your Las Vegas business is crucial because of its implications on various matters. This includes how you will pay your taxes, the extent of record-keeping you need to do, your ability to raise capital, and your liability.
With so much at stake in making this decision, it is highly advisable that you seek guidance from a business aficionado, a lawyer, or an accountant. Additionally, while you may change your business structure in the future, that option comes with a price in the literal and figurative sense. For one, there could be tax consequences.
Indeed, it’s important that you choose the structure of your Las Vegas business wisely. To help you make an informed decision, we’ll tackle the definition, advantages, and disadvantages of the most common types of business structures to date.
Most Common Types of Business Structures
The most common type of business structure is the sole proprietorship. In this type of structure, the state does not consider a business as a separate entity from its owner. Therefore, the personal assets and liabilities of the business and the personal assets and liabilities of the owner are one. This is why this structure is great for low-risk businesses.
The state automatically labels a business as a sole proprietorship when the owner begins operations of the business and not register it as another business structure.
- Easy and inexpensive to start. Usually, all you will need is a license to begin operations.
- The owner possesses full control over the business.
- Holds you liable for all financial obligations of the business.
- Tough to raise money because you can’t sell stocks.
A partnership is a business structure that involves two or more owners. A document called a partnership agreement contains the details of the partnership. Same with the sole proprietorship, the state does not consider the partnership as a separate entity from its owners.
- The owners don’t pay corporate tax because the profit passes through their personal income. However, a recent law called the Tax Cuts and Jobs Cuts of 2017 (also known as the Trump Tax Cuts Act) introduced a relevant change in this advantage. You may learn more about the law and its implications to your business here.
- Each partner is liable for all financial obligations of the business just like in the sole proprietorship.
A corporation or a C Corp is a business structure wherein the business acts as a separate entity from the owner. Hence, the C Corp can make a profit, pay tax, and be accountable for its actions. This also means that the assets and liabilities of the business are separate from the personal assets and liabilities of shareholders. This is why this business structure is great for medium to high-risk businesses.
- Avoidance of personal liability.
- More opportunity to raise money as you can sell stocks.
- The corporation can continue to operate even if one shareholder dies, becomes disabled, or sells his or her shares.
- It’s expensive to form a corporation considering the amount of record-keeping you need to do.
- Another disadvantage that many raise regarding forming a C Corp is double taxation. C Corp pays tax when the company makes a profit and when the profit passes through among shareholders. This drawback is what the next business structure primarily resolves.
Similar to a partnership, the profit of an S Corp passes through among shareholders, allowing them to pay tax on the individual level only.
- Avoids double taxation.
- Still expensive with all the paperwork that you need to accomplish.
There are limitations that S Corps face. For one, S Corps can’t have more than a hundred shareholders. They must all be U.S. citizens as well.
LLC is a business structure that provides owners the advantages of both a partnership and a corporation. This means that you can avoid liability of the business. It also means that you don’t need to pay any business tax as the profit of the business passes through to your personal income. This is why it’s great for medium to high-risk businesses.
Please choose your business structure carefully. Don’t hesitate to research more and even seek the guidance of experts. Once you’ve finally come to a sound decision, the next step is registering your business with the State of Nevada via SilverFlume. All the best to you and your business!