Learn about the advantages and disadvantages of corporations, limited liability companies, partnerships, single proprietorships, and other business forms.
You'll need to know your choices before you can select how you want to organize your company. Here's a quick summary of the most prevalent business structures:
A sole proprietorship is a one-person business that is not incorporated or registered with the state. To start a sole proprietorship, you don't need to do anything specific or file any paperwork; you simply go into business for yourself.
A sole proprietorship is legally inseparable from its owner; the company and the proprietor are one and the same. This implies that the business owner is personally accountable for any business-related responsibilities, such as debts or court judgments, and declares business revenue and losses on his or her personal tax return.
Sole proprietorships are appropriate for businesses where personal responsibility isn't a major concern, such as small service businesses where you're unlikely to be sued and won't need to borrow much money for inventory or other expenses.
A partnership, on the other hand, is a company owned by two or more persons that hasn't filed papers to become a corporation or a limited liability company (LLC). To create a partnership, you don't need to file any paperwork; the agreement takes effect as soon as you start a business with another individual. The partnership's owners pay taxes on their share of the business revenue on their personal tax returns, much like a sole proprietorship, and they are personally responsible for the full amount of any business obligations and claims. Both sole proprietors and partners in a partnership may qualify for the 20% pass-through tax deduction established by the Tax Cuts and Jobs Act (TCJA).
Partnerships, like sole proprietorships, are appropriate in businesses where personal responsibility isn't a major concern.
Limited partnerships are difficult to set up and manage, making them unsuitable for the ordinary small business owner. Limited partnerships are often formed by a single person or corporation (the "general partner") who will seek investment from others (the "limited partners").
The general partner is responsible for the day-to-day operations of the limited partnership and is personally accountable for any business obligations (unless the general partner is a corporation or an LLC). Limited partners having little influence over day-to-day business decisions or operations in exchange for not being personally responsible for business debts or claims. If you're interested in starting a limited partnership, speak with a professional.
Limited Liability Companies (LLC)
Forming and running an LLC is a little more difficult and expensive, but it's well worth the effort for certain small enterprises. The major advantage of forming an LLC is that it reduces the owners' personal liability for corporate obligations and court judgements.
Limited liability companies (LLCs) restrict personal liability for company debts and claims. However, LLCs are more like partnerships when it comes to taxes: the LLC's owners pay taxes on their portions of the business revenue on their personal tax returns.
LLCs are ideal for business owners who are concerned about being sued by customers or accumulating a large amount of corporate debts, or who have significant personal assets they wish to shield from business creditors.
Creating and maintaining a corporation is more difficult and expensive than forming and operating an LLC, but the structure restricts the owners' personal liability for business obligations and court judgements against the company.
The fact that a corporation is a separate legal and tax entity from the persons who own, control, and manage it distinguishes it from all other forms of companies. Because of this distinction, a company's owners do not use their personal tax returns to pay taxes on corporate earnings; instead, the business pays these taxes. The TCJA introduced a single flat tax rate of 21% for businesses, which is substantially lower than the 15% to 35% rate that firms paid previously. Owners only pay personal income tax on money they get from the business in the form of wages, bonuses, and other benefits.
Corporations make sense for business owners who either (1) face consumer lawsuits or a large amount of business debts, or (2) have significant personal assets they want to safeguard from business creditors.
A nonprofit corporation is one that was established for the purpose of pursuing philanthropic, educational, religious, literary, or scientific goals. Individual and corporate gifts, as well as public and private grant money, can help a nonprofit raise much-needed finances. Because of the advantages they provide to society, the federal and state governments do not usually tax nonprofit businesses on money they receive that is connected to their charitable mission.
Some individuals fantasize of creating a genuine equals business, one that is owned and run democratically by its members. These grassroots business organizers frequently refer to their companies as a "group," "collective," or "co-op," however these terms are typically used informally rather than legally. A consumer co-op might, for example, be founded to manage a grocery shop, a bookstore, or any other type of retail business. Alternatively, a workers' co-op might be formed to produce and sell arts and crafts. Most states have rules governing cooperative formation, and in certain jurisdictions, you may file papers with the secretary of state's office to get your cooperative recognized by the state.
Yoel Molina, Esq. (AKA “Mo”)
Feel free to join our WhatsApp group if you want to know more about his and more!
Yoel “Mo” Molina, I am a lifelong resident of Miami, Fl. I am a graduate of Miami Senior High, Class of 1992, Georgia Institute of Technology, B.S. 1997 and University of Maine School of Law, J.D. 2001. I have been practicing law in Miami Since 2001. I am a former training prosecutor in the Miami-Dade State Attorney’s Office. I have experience in jury trials, appeals, and administrative hearings. I have appeared before judges across the State. My experience ranges from civil litigation matters, collection matters, foreclosure, business and corporate, contracts, real estate, leases and employment matters..
"Mr. Molina has always been there for us with timely, reliable and competent advice. He is an important and valuable part of our team." Corporate Client Eric Delgado, President of American International Export, Inc., a worldwide importer and exporter of brand name appliance parts.
"Yoel has been responsive and attentive to our company’s best interests and needs. He has been a valuable resource to our company. Any company that enlists his services would be in good hands-- including our own clients.” Corporate Client Gibran Flynn - Co-Owner and Founder of Eleva Solutions, Inc., the South Florida leader of outsourced HR, Staffing, Training, and Loss Prevention.
"My name is Anastasia Yecke Gude and I am the owner of Healing Hands Therapeutic Massage LLC. In the process of my company’s growth and expansion, I suddenly found myself a few weeks ago in need of a 1099 contractor agreement, and I needed it ASAP. As in, the very next day! I contacted the Law Office of Yoel Molina and his assistant put me in touch with Mo. I sent him what I had drafted up and he replied within a few hours with suggested revisions and clarifications, as well as a few insights I had not even considered. I was thoroughly impressed by the quality of work he provided, especially considering the time crunch I put him in (sorry, Mo!). I definitely recommend his services to anyone in need of a good contract attorney, and I will be calling him again for future work…hopefully in less of a rush next time!"