Choosing an Entity Type Which is Best for your New Business Venture

It is often confusing for taxpayers to chose which entity type is best for their business when initially incorporating. This election is an all important first decision is critical to getting started off on the right foot. Understanding these differences and nuances will do much to give business owners and entrepreneur a "leg up" and the needed knowledge to help ensure that they make a wise and informed decision.

Limited Liability Company

LLC's are unique in that there can both be a "flow through" entity in that their earnings flow down to their respective owners personal return, while they also, for tax purposes, can be converted either over to a C Corporation or an S Corporation. LLC's offer the flexibility and tax efficiency of a partnership while offering legal protection as well.

Limited Liability Partnership

LLP's are unique from a regular partnership in that they offer limited liability protection for its partners. In an LLP a partner is not responsible for the professional misconduct or negligence of other owners. Unlike in an regular C or S Corporation the partners of an LLP will manage the business directly whereas in a corporation, a Board of Directors as well as Officers would be elected.

Other Tax Entity Options

For the most part the basic rules of being an S Corporation have remain unchanged for almost fifty years. S Corporations are required to have a Board of Directors, and their attendant meetings and to elect elected Officers in order to run the business. In many small business's these different capacities are held by the same individual, the owner. An S Corporations overall tax bill will most always over time be less than an LLC, LLP or Partnership. All of the net active earnings from an LLC, LLP and Partnership are subject to FICA/Medicaid earnings whereas in an S Corporation only the earned wages or W-2 of the owner are subject to FICA/Medicaid taxes, as long as the S Corporation owner pays a fair and reasonable salary given position and profit. An S Corporation as well, is a flow through entity where all of the net earnings flow through the corporate return to the business respective shareholders.

Choosing the right entity type will have many other significant tax, legal, retirement and financial issues as well. Consulting with your trusted CPA and adviser is your best first step to making a wise and informed decision.

To learn about incorporating in Georgia visit http://www.hiscpa.com/article6.html

John Dillard is an author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (an Atlanta Christian CPA firm) and for his latest book Overcoming Life's 9/11's: Job's Journey visit http://www.john-dillard.com/