A C Corporation (C Corp) seems like the best fit for your business

Like any corporation, a C corporation separates the owners from the business. Instead of the owner, a board of directors is responsible for making major business decisions, including hiring, firing and managing the officers who lead day-to-day operations.

The corporation is liable for losses, and the owner is not obligated to use past earnings to pay off debts. Also, the company can create and sell stock to raise capital, with the stockholders becoming partial owners. In fact, a C corporation has no restrictions on who can own stock in the company, and stock can be passed on to others if an owner dies.

One drawback to a C corporation is double taxation: The corporation’s profits are taxed and then shareholders are taxed on their individual distributions. Another potential disadvantage is that having a board of directors means the founder must give up some control over the company. If the board’s view of corporate performance is different from the founder’s, the board can vote down the founder’s proposals. The board can even fire the founder if performance is not meeting expectations. The legal and accounting costs of setting up a C corporation are also a downside, as they are higher than a sole proprietorship or a partnership. You’ll need cash on hand to go this route.

A S Corporation (S Corp) seems like the best fit for your business

An S corporation provides liability protection for owners, and both types face similar challenges. For example, they are required to have a board of directors, hold shareholder meetings and pay higher legal and accounting costs.

The biggest difference — and benefit — of an S corporation is that it doesn’t pay taxes at a corporate level. Profits can be passed through as distributions, which are taxed at a lower rate. Also, S corporations have limitations on their ability to sell stock. An S corporation can only have 100 shareholders, and only individuals can hold stock in an S corporation.

A Limited Liability Company (LLC) seems like the best fit for your business

You can think of an LLC as a mix of partnerships and corporations. An LLC provides liability protection and avoids double taxation by passing earnings on to owners. LLCs have no limits on the number of shareholders, and an LLC owner can fully participate in business operations.

A Partnership seems like the best fit for your business

Partnerships are similar to sole proprietorships but with multiple owners. Partners are all personally liable for losses and pay payroll taxes on their earnings.

However, since each partner shares in the profits and losses, takes deductions and receives credits on their personal income taxes in proportion to their ownership stake, they can often keep their personal tax liability low. Although, again, payroll taxes cannot be reduced and often eat into any personal income tax savings.

A Sole Proprietorship (Sole Prop.) seems like the best fit for your business

A sole proprietor is a single owner who has complete control over the business. Many businesses begin as sole proprietorships because the structure is straightforward and it’s inexpensive to get started.

However, a sole proprietor is personally liable for any financial losses. For example, if a sole proprietor is shipped supplies but cannot make enough revenue to pay the supplier, the owner can be sued for the remaining balance. On the plus side, sole proprietors can buy liability insurance to protect them from many types of losses.

Sometimes, sole proprietorships also pay more in taxes since business revenue is viewed as personal income, which means they must pay both the business and personal shares of payroll taxes such as Social Security and Medicare.