Michigan residents who are considering setting up a new business may need to make a very important decision in the early stages of getting organized. That decision is the organizational structure they want for their business. There are many structures that are possible and many considerations to review before making a decision.
Among the structures available under law are sole proprietorships, partnerships, limited liability companies, S corps and C corps. Each framework has its advantages and drawbacks. For example, a sole proprietorship may be the least costly, but it often provides the least protection for sheltering the owner from the liabilities of the business.
A corporation, in contrast, may be the best vehicle for protecting the owners from the business liabilities because a corporation is an independent entity. However, a corporation may be the most costly of all business structures to set up and may have the most rules and regulations to follow.
Each state has its own laws of incorporation, so developing an understanding of a state’s regulations could take some time. Corporations are also not necessarily the best way to minimize tax liabilities, as corporate profits and dividends passed on to shareholders are both taxable. Once a corporation has been set up, it is important to keep separate and accurate records of the business transactions disconnected from those of the owners.
Many advisors recommend that an attorney be consulted in the early stages of business planning. An attorney may be able to clearly explain the advantages and drawbacks of each business structure and help the owners decide which structure is most appropriate for their business, their state and the goals they have for their endeavor.
Source: Entrepreneur, “Incorporating Your Business“, November 29, 2014