Entity selection considerations in the context of compensation and payroll.
Employees are paid a salary, and federal, state, Social Security and Medicare taxes are withheld. The employer matches the Social Security and Medicare taxes withheld for each employee. An individual who is self-employed pays federal, state, Social Security and Medicare taxes on net self-employment income.
Entity selection considerations in the context of legal liability
For many business owners, liability is a serious concern. Although a CPA can provide you with detailed advice on the tax implications of various legal structures and general advice on liability protection, you should direct any specific liability questions to an attorney who specializes in corporate law. Additional liability protection is available to any business structure by purchasing insurance.
Entity considerations in the context of continuity and transferability
Even though you’re just starting out, you should begin with the end in mind. What will happen to your business when you retire or die? Each legal structure provides a different answer.
Entity considerations in the context of investment
If you plan to raise capital through equity investments, your legal structure will be especially important for defining the role that investors will have in governance and the distribution of profits.
Entity considerations in the context of operation and control
Although liability and tax implications are important, the legal structure of your business will dictate certain aspects of how you operate in the years to come.
GUIDE TO SELECTING YOUR SMALL BUSINESS LEGAL STRUCTURE
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Sole proprietorship
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Partnership - general and limited
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Corporation — S corporation, C corporation
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Limited liability company (LLC)
The choices can be complicated — and errors can be costly. Business legal structures are regulated by state governments, but your county or municipality also may have license requirements.
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*Effective for tax year 2020
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