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Finding the right business structure

Detroit business owners have plenty to worry about during day-to-day operations. This preoccupation could lead them to overlook one very basic aspect of their business -- its structure. From sole proprietors to limited liability corporations, there are many different types of business structures, each having a potential effect on your taxes or how the company operates.

If a company has been in business for a long time, that does not mean it shouldn't worry about business structure. Just because a company started in one structure does not mean executives cannot change it later, either. By assessing a company and its needs, changing a business structure could be incredibly worthwhile.

Here is a little bit about the more popular business structures in the United States:

  • Sole proprietorship: This structure requires no action, as an individual represents the company fully. The government taxes the individual. The worst thing about this structure is that the individual has unlimited liability. This means others can sue the business owner individually, putting their personal assets in danger.
  • LLC: An LLC solves the liability issues tied in with sole proprietorships and protects one's personal assets. A business owner will have to file Articles of Organization to form, but this is a much more informal structure compared to a C Corporation and S Corporation.
  • C Corporation: Shareholders own this very common form of a corporation, and appoint a board of directors to dictate policies. A C Corporation is taxed separately, therefore, will have to pay a corporate tax on profits. Because of these taxes, it is not wise for small business owners to structure their company as a C Corporation.
  • S Corporation: This is like a C Corporation, but geared more toward small business owners. A C Corporation is not taxed separately from its owners. Losses and profits are reported on the individual tax returns of the owners. The only catch is that businesses must be eligible for S Corporation status, as the government tries to limit them.

Picking a proper structure for a business is fundamental and lays the groundwork for everything else. That is why it is important to select an appropriate one.

Source: Business Insider, "Get your business structure fit for 2012," Jan. 17, 2012

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