Entity Types

What Entity Type Do You Need An Ein (Tax Id) For?

Sole Proprietor / Individual

Advantages
  • Simple and inexpensive to start
  • Owners have sole control of profits
  • No double taxation on business income
  • Business profits filed on personal tax return
  • No annual reports or filings requirements
Disadvantages
  • Owners have unlimited liability
  • Cannot take on business debt
  • Can be perceived as unprofessional
  • Business life is not ongoing
  • Capital is difficult to raise
Sole Proprietor Business Types
  • Cleaning Services
  • Lawn Care Services
  • Consulting Services
  • Computer Repair Services
  • Tutoring Services
  • Home-Based Businesses

Limited Liability Company (LLC)

Advantages
  • Flexibility with how you are taxed
  • Can have unlimited number of members
  • Members are protected from liabilities
  • Low filing costs with little paperwork
  • Simple flow-through income taxation
Disadvantages
  • State franchise or capital values tax
  • Cannot pay yourself wages
  • State renewal fees
  • State publication requirements
  • Raising capital may be difficult
LLC Business Types
  • Real Estate Company
  • Law Firm
  • Accounting Firm
  • Investment Firm
  • Rental Properties
  • Online Businesses

Estate of Deceased Individual (Executors)

Advantages
  • Executors are in control of the Estate
  • Executors make sure things go as planned
  • Executors can be compensated for work
  • Executors can distribute assets
  • Executors can fulfill decedents final wishes
Disadvantages
  • Being an Executor can be time consuming
  • Executors have a fiduciary duty to decedent
  • Executors may be liable for breach of duty
  • Dealing with beneficiaries can be difficult
  • Executors may experience learning curves
Common Executor Tasks
  • Notifying agencies of death
  • Paying creditors
  • Paying taxes
  • Disposing of real property
  • Making court appearances
  • Distributing assets

Non Profit Organization (NPO)

Advantages
  • Possible tax deductions & exemptions
  • May be eligible for public & private grants
  • Personal liability protection
  • May qualify for group discounts
  • Can remain in existence indefinitely
Disadvantages
  • Can take a long time to establish
  • Must submit annual filings
  • Difficult to find willing volunteers
  • Funding can be hard to receive
  • Employees may work more for less
Different Types of Non Profits
  • Fraternal Societies
  • Home Owners Associations
  • Amateur Sports Teams
  • Social Welfare Organizations
  • Religious Organizations
  • Private Foundations

Trust

Advantages (Revocable Trust)
  • Avoid probate with judicial authority
  • Flexibility at time of death
  • Continuity of management if disabled
  • Full use of assets while alive
  • No delay in investment strategies
Disadvantages (Revocable Trust)
  • Can be expensive to establish
  • May not protect you from creditors
  • Possible filing fees can be incurred
  • Preferred setup through attorney
  • Property registered in name of Trust
Different Types of Trusts
  • Revocable Trust (Living Trust)
  • Irrevocable Trust
  • Charitable Trust
  • Special Needs Trust
  • Guardianship
  • Custodianship

Partnership

Advantages
  • Leverage partner knowledge & expertise
  • Shared financial burdens and expenses
  • Potential tax benefits and savings
  • No double taxation for owners
  • Simple tax filings with Form 1065
Disadvantages
  • Shared liabilities incurred by partners
  • Self-employment taxes
  • Exit strategies can be complicated
  • Potential conflicts with partners
  • Raising capital may be difficult
Definition of a Partnership

A Partnership is a business made up of two or more individuals that does not require any incorporation paperwork with the federal government. There are three types of partnerships including: General Partnerships, Limited Partnerships, and Limited Liability Partnerships. One of the biggest benefits of a Partnership is pass through taxes.

C-Corporation (C-Corp)

Advantages
  • Limited liability for owners & founders
  • Easy to raise capital with stock options
  • Employees can buy stock at a fixed price
  • Known as a well established structure
  • Owners can sell stock to acquire capital
Disadvantages
  • More paperwork than other entities
  • Must hold formal shareholder meetings
  • Corporate tax forms can be difficult
  • Little flexibility with lots of regulations
  • Possibility of double taxation
Definition of a C Corporation

A C Corporation is any corporation where profits are taxed separately from owners and is therefore recognized by the federal government as a separate taxpaying entity. A C Corporation features double taxation with one tax at the company level and the other tax on shareholder profit distributions.

S-Corporation (S-Corp)

Advantages
  • Personal assets are protected
  • Benefits of pass-through taxation
  • Ownership is easily transferred
  • Comes with professional credibility
  • Enhanced privacy protection
Disadvantages
  • Formation can be challenging
  • Stock restrictions for shareholders
  • Stricter tax obligations with IRS
  • Maximum of 100 shareholders
  • Limited to one class of stock only
Definition of an S Corporation

An S Corporation is a type of corporation created through an IRS tax election that opts to pass its income, credits, deductions, and losses through to its shareholders for federal tax purposes. Shareholders of an S Corporation are required to report their income and losses on their personal tax returns, where they will be accessed at an individual income tax rate.

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