Business Planning

Law Office of Matthew A. Ferri, PLLC
 

Which entity is right for you?

 

The following is a brief overview of entity formation considerations:

 

LLCs

 

The single-member LLC is a good option for small and medium-sized businesses because of the simplicity, flexibility, limited liability, and pass-through income tax status (as a sole proprietorship, not as a partnership) the LLC provides for the owner.

 

S Corps

 

An S corporation may be a viable alternative because it also accomplishes the goals of limited liability, flexibility, and pass-through tax status. However, there are more formalities in the start up process as well as periodic documentation.

 

There is also one other very important difference between the tax treatment of an LLC and an S corporation, and that is with respect to self-employment tax. Shareholders in an S corporation are not subject to this additional tax. However, like partners in a partnership and sole proprietors, members who are managers in an LLC are subject to this tax. In a partnership, the general partners are subject to self-employment tax on their allocable share of company income.

 

Partnerships

 

Simple to form, a lot of flexibility, easily understood structure of the business and possessing individually owned assets. A partnership structure has unlimited personal liability of the general partners for the acts or omissions of the partnership, including vicarious liability for the acts of other general partners.

 

Sole Proprietorships

 

This is the simplest structure. Taxes and financial reporting are done on an individual basis. Federal tax returns will change only by filing a schedule C on your individual tax return. The disadvantage to this structure is that you may well be subject to personal liability.


If you'd like more information about my business planning services, please call me at (586) 254-9200 or (248) 409-0256.


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