Choosing the Right Business Structure for Your Startup

Starting a business is a challenging endeavor and there are many aspects to consider. 

There are Several Types of Business Structures: 

• Sole Proprietorship

• Partnership

• Corporation

• S Corporation 

• Limited Liability Company (LLC)

These are defined as follows: 

Sole Proprietorship 

• Unincorporated – one person owns 

• Simplest type of business organization 

• Sole owner has complete control 

• Owner assumes the risks to extent of all personal and business assets 

• Capital limited to what owner can raise 

• Files Form 1040 with Schedule C and Schedule SE 

• Qualified joint ventures 

Partnership 

• Two or more partners 

• Partners contribute money, property, labor, or skills

• Partners share in profits or losses

• Easy to organize

• Definite legal status

• Decisional authority divided

• Liability of partners is usually unlimited

• Files Form 1065

• Each partner gets a Form 1065, Schedule K-1

Corporation 

• Legal entity – separate from its owner(s)

• Rights and duties of its own

• Owner(s) are stockholder(s)/shareholder(s)

• Stockholders have limited liability

• Transfer of ownership is easy – sell stock

• Raising capital and expanding may be easier

• Subject to tax on income at corporate level

• Dividend income is taxed at shareholder level

• Files Form 1120

• Raising capital and expanding may be easier 

• Subject to tax on income at corporate level 

• Dividend income is taxed at shareholder level 

• Files Form 1120 

S Corporation 

• Shareholders elect to have S corporation profits or losses taxed like a partnership 

• File Form 2553, Election by a Small Business Corporation 

• By the 15th day of the 3rd month of the 1st year 

• S corporation does not pay tax on income from daily operations – income, losses, deductions, and credit pass through to shareholders 

• Shareholders report income personal tax returns 

• Files Form 1120-S 

• Each shareholder gets Form 1120-S, Schedule K-1

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This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship. 

For more information on this and other topics, please contact Kevin via any of the channels listed below:

📧 kevin@kmckernan.com  | 📞 718-317-5007