Business structure plays a vital role in the success of a business venture. A business entity can affect your financial and legal obligations. There are a lot of options available for business entities. It is important for you to understand each legal entity suitable for your business and which will align with your business objectives and circumstances. In this blog, we'll explore some of the best business entities to incorporate company in US and their key characteristics.
What is a Business Legal Structure?
A business entity refers to the legal status, obligations, and liability exposure of a company. The US has five main types of entities for business. Have a look at them.
A sole proprietorship company is one of the most basic business entities in the US. When there is only one owner, and he or she is responsible for all obligations of the business, it is called a sole proprietorship company. This type of company is liable for tax arrangements depending on the personal tax income returns. The current personal tax rate in the US is 37%, plus 15.3% for self-employment tax.
Two or more partners form a partnership company where each individual is responsible for contributing something like skills, property, or money. You can make a partnership with formal agreements or written contracts or through informal, verbal agreements. There are two main types: general partnerships and limited partnerships. All partners have equal management authority in a general partnership and share profits, losses, and liabilities. In a limited partnership, some general partners manage the business and assume liability, while limited partners contribute capital but have limited involvement and liability. However, personal liability remains a concern for general partners for company formation in the USA.
Limited Liability Company (LLC):
A limited liability company is a business structure that provides limited liability protection to the owners. Two types of LLCs are popular in the US: single-member and multi-member LLCs. It combines elements of both partnerships and corporations. An LLC is suitable for any small business venture because you can protect your assets from potential liabilities and have fewer formalities than a corporation. Learn more about what is an offshore LLC.
An S corporation is a mixture of the limited liability protection of a corporation with the tax advantages of a sole proprietorship or partnership for business owners. It is more of a tax designation than a business entity. An S corporation provides tax advantages of a limited liability but allows owners to pass income, losses, deductions, and credits through their tax returns. This way, you can avoid double taxation liability. According to the US rules and regulations, all shareholders of an S corp must be US residents or US taxpayers. You cannot simply establish an S corp; you have to form a C corp or an LLC, and then you have to qualify for an S corp.
A C corporation is a business entity that offers limited liability protection, perpetual existence, and the ability to raise funds by selling stocks. Sometimes, an S Corp and a C Corp are identical; however, there is one difference between these two types of legal entities. C corporations are entitled to a double taxation policy, whereas a C corp is only liable for tax payment at the personal level. A C corp is liable for two times tax payment since you gain profit depending on the corporate level and dividend tax is eligle on the individual level. Due to this reason, a C corporation is often not considered for startups or small business ventures. A business with great growth potential to go public prefers a C corporation business structure.
How Can We Help?
You might face issues deciding the most suitable business entity for your venture. Don’t worry. Business Setup Worldwide is here to help you out. Contact us, and our business professionals will help you understand different business entities available in the US suitable for your business. Give us a call right away.