Austin Business Lawyer

Basic Business Structures

When starting a company, a decision must be made about which legal entity the enterprise will become. There are various options that the government recognizes, and they each have important legal and tax ramifications. The most common types of businesses include:

• Sole Proprietorship
• Partnerships
• Corporations
• S Corporations
• Limited Liability Company (LLC)

A sole proprietorship is usually owned by a single person or household, and is inexpensive to create. The owner is personally liable for all debts from the company and can include profits or losses from the business on personal tax statements.

A general partnership is a similar structure except that instead of sole responsibility, two or more partners agree to jointly own the company. The profits and losses are split among the partners, and each of them lists their share on their individual tax returns. A joint venture is a short-term partnership.

A corporation (C corporation) is an entity separate from its owners. The owners hold stock in the corporation, and the profits are taxed both on the corporate level and when parceled out to shareholders. Corporations can be created either for profit or not-for-profit, and there are different tax codes for each structure. Corporations are often significantly more expensive to form, although its shareholders are not held personally liable for the company’s debts.

S corporations are nearly identical to C corporations except that the company’s profits are not taxed on the corporate level. It is often treated as a partnership, and the shareholders report profits or losses on their individual tax returns.

A Limited Liability Company (LLC) is considered to be an advantageous form of business because it combines the limited personal liability of a corporate structure with the tax benefits of a partnership or sole proprietorship. The LLC can choose to be taxed either as a corporation or as a partnership with profits and losses going directly to its owners.

If you are considering starting a business or are looking to change your company’s structure, effective legal advice can be incredibly useful. Contact the Austin business lawyers of Slater Kennon & Jameson, LLP today at 512-472-2431 for help with all of your business’ legal needs.