Determining how to structure your business is one of the most important legal decisions you'll have to make. Luckily for us we have Jason Pappas to help.
Wan to learn more about this topic? We have some good news!
Jason will be teaching a course on Entrepreneurial Finance (ENTR 330) this fall which correlated closely to this workshop’s content. You can find more information about the class here.
You can also find the unedited audio of the workshop below.
Below is a simple table that summarizes the differences between the five structures of business you can have. Overall the best way for an entrepreneur to set up their business is S-corporation or a LLC.
Sole proprietor is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. This means that if someone is to sue your company you are not protected. You also need to pay all taxes on profits that you earn.
A partnership is a legal form of business operation between two or more individuals who share management and profits. The federal government recognizes several types of partnerships. The two most common are general and limited partnerships. There is also no liability protection in case the company is sued. However, there is pass through on taxes. In short pass through means that you will not be double taxed for any profits. The rate on a securitized asset is "passed-through" to investors once management fees and guarantee fees have been paid to the securitizing corporation.
A C-corporation refers to any corporation that is taxed separately from its owners. A C-corporation is distinguished from an S-corporation, which generally is not taxed separately. Entrepreneurs would not want to structure their business as a C- corporation because there is no pass through on taxes. A C- corporation is best used if you want to reinvest the money into the business and avoid being double taxed.
A limited liability companies (LLC) is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. This structure also allows you to choose how you want to be taxed and if you can discriminate distribution between owners.