Questions

A business entity describes the legal structure of a business operation. Some common types include C corporations, S corporations, sole proprietorships, partnerships, nonprofits, and Limited Liability Companies (LLCs).

When it comes to business entities, there are many factors that come into play in deciding what type is right for you. From ownership to real estate to tax implications, your best choice will depend on your unique situation.

Key Questions

Answering the following questions can help you choose the structure most suited to your business goals. 

Owners

  1. Do you intend to remain the sole owner? Once you determine this, you can better understand if you even need to form a company. If so, you’ll want to choose the type that fits your individual needs.

  2. Do you plan to add other owners, including employees? If you do, you might find that one entity type is easier for them to understand. Further, you’ll need to figure out if your employees have to pay taxes just because they received that equity ownership for free.

  3. Do you want some owners to have preferred rights? It is wise to learn what entity types this is possible for if you have some owners who want preferred rights to dividends. 

  4. Do you have owners who are not US individuals? If any of your owners are not U.S. residents, certain entity options may not be available. 

Taxes

  1. Do you want to limit the amount paid for FICA tax on your portion of the profits? If you are interested in lowering payroll-related taxes, you might be better suited for a specific structure, as it can change how much of your income is taxed. 

  2. If you start a C corporation, do you want to switch to “pass-through” tax treatment, or do you plan to sell in the next 5 years? The decisions can come with major tax implications, and you’ll want to make sure you fully consider these first. 

  3. If you operate as an S corporation but your new investors don’t want pass-through tax treatment, what choices do you have? If this is the case, another entity type might be the way to go to keep your investors happy.

  4. When you have multiple companies, is there a way to limit the number of income tax returns you have to file? There are some structures that allow you to group things together, and you might choose one of those for convenience. 

  5. Is it possible to combine an LLC structure with corporation tax treatment? It is possible to do so by filing the right election form with the IRS.

Real Estate

  1. Say you have a business and choose to buy a commercial property for it. Should you form a separate company? Separating real estate from your business can prove beneficial in some cases, such as preventing double taxation and limiting legal liability. If you decide to form a separate company, you will also have to choose the type. 

  2. If you invest in residential real estate you plan to rent out, should you form a separate company for each property? Many people prefer separation for liability protection, while others prefer to take a simpler route. 

Contact MKP Law

At MKP Law, we work hard to learn your business needs and how we can help. We can help you understand your options for business entity types and the pros and cons of each. 

To consult with a professional about entity structures, connect with our team today.