Question
You need to create a legal structure for your small business. You would like some of the benefits enjoyed by large corporations, but do not want to be taxed twice. You have four partners who will be shareholders None of you plan to sell your ownership shares to the public but do want to be protected from business liabilities. Which legal structure should you set up for your business? Sole Proprietorship C-Corporation Limited Liability Cómpany S-Corporation
Answer
4.5
(99 Votes)
Keren
Elite · Tutor for 8 years
Answer
S-Corporation
Explanation
When deciding on a legal structure for your small business with four partners, you're seeking protection from business liabilities and to avoid double taxation, which are both key considerations. There are two primary structures that fit these needs:1. **Limited Liability Company (LLC)**: Provides liability protection and prevents double taxation, where earnings are only taxed once as personal income.2. **S-Corporation (S-Corp)**: Also offers liability protection and only allows income to be taxed once, with earnings passing through to shareholders' personal tax returns.However, an **S-Corporation** is often more suitable for a business with partners (shareholders) who do not intend to go public and who want the benefits of a corporation without the burden of double taxation. While both structures meet your requirements, the S-Corporation structure is designed specifically to provide similar protections and tax advantages enjoyed by larger corporations without double taxation.