Business Formations

Choosing The Best Form of Business For Your Situation

When someone decides to open their own business many decisions need to be made. One of the first decisions is what type of entity your business should operate. Generally, businesses can be set up as a sole proprietor, C-corporation, S-corporation, partnership, non-profit organization, Limited Liability Company and Limited Liability Partnership. With so many options how would one even know which entity is best for their situation?

Which organization is best for your situation depends on several factors, some of which are tax-related, some business related and some by legal factors.

Basically, the types of business organizations can be divided into two groups; Corporations where tax is assessed at the corporate level and "pass-through entities" where tax is assessed at the shareholder level.

Businesses taxed at the corporate level are:

  • C-Corporations
  • Limited Liability Companies taxed as C-corporations
  • Non-profit organizations

Businesses taxed at the owner level ("Pass through entities")

  • Sole Proprietor
  • S-Corporations
  • Partnerships
  • LLC/LLP/PLLC/PLLP taxed as partnerships

For Federal tax purposes there are only 6 forms of business organizations:

  • Sole Proprietor (reported on Form 1040 Schedule C or Schedule F)
  • C-Corporation (reported on Form 1120)
  • S-Corporation (reported on Form 1120S)
  • Partnership (reported on Form 1065)
  • Trusts (reported on Form 1041)
  • Non-profit organization (reported on Form 990)

You may notice the limited liability company (LLC) is not listed above. That is because an LLC can be treated, for tax purposes, as a sole proprietor, a partnership, a C-corporation or an S-corporation. The owners of the LLC can pick which tax treatment will apply. By default, an LLC with just one owner is considered a disregarded entity which will then cause the LLC to be treated for tax purposes the same way the owner of the LLC is taxed. By default, an LLC with two or more owners is considered a partnership. An LLC can choose to opt out of the default treatment by electing to be treated as a Corporation. After electing to be treated as a corporation owners can further elect to be treated as an S-corporation.

Choosing which type of organizational structure your business will operate under is a complicated question, one that should not be made alone. Employing the assistance of an experienced Tax Attorney and CPA can be invaluable. Atlanta tax attorney and CPA Jeffrey S. Gartzman is a consummate professional with over 30 years of experience representing individuals and businesses in making this decision. Further, The Gartzman Law Firm, P.C. can form your organization in house after meeting with you to discuss which best suits your needs. Contact The Gartzman Law Firm, P.C., today to begin the process.