How To Find A Great Type Of Business Entity
Sole proprietorship, partnership, limited liability company, c corporation, and s corporation are some of the types of companies available for your business type. But how do you choose? First we should take a look at the purpose our business. If we are strictly going to sell products, a c corporation is a serious contender.
Of all the types of companies, why is a c corp especially suited to sell retail products? First, there is the limited liability protection of the c corporation. Often times lawsuits result from product liability. When the company is sued, the owners will not be responsible for any resulting debt. Second, the business entity is separate and distinct from the owner. So even when an owner dies, it does not disrupt the operation of the business. Third, taxes are always a concern. Of all the business entity types, a c corporation is much more favorable to retailers than service providers. Lawyers and other professionals that provide services in lieu of products should definitely not consider a c corporation as their business entity choice. Service providers are given the label of personal service corporations and are taxed at a higher flat rate than retailers are.
If you are a retailer but also have other passive income, you should know what percentage of your income will be passive. If the percentage is high, you should do one of two things. Consider not being a c corporation. C corporations have many negative implications for a business with high passive income. Or you may split the business into two entities. A c corp will handle the retail sales. Your passive income will go through another entity choice. It becomes confusing to ensure you record the correct expense in the right company. There are also more expenses to run two companies.
Tags: business entity, business entity types, types of companies