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Monday, January 19, 2009

Structuring Business to get the Most Corporate Credit

By Susan Carter

This is a good question if you are starting up a new business venture. You have probably already decided on your business product, but you still have an more important issue to decide. You need to know what type of business entity structure will be the most beneficial and easy for your company. Have you heard of Limited Liability Company, C-Corporation, or S-Corporation? If your answer is yes, but you dont really understand the difference, then read the rest of this article.

There are many business structures you can use when you are setting up a new company. They each come with different benefits as well as liabilities. Here's a breakdown of the most common:

1. What is a Sole Proprietorship? This is a one-person show where the individual person running the business keeps all the profits. However, they also carry all the responsibility and liability. This is definitely the least desirable form of business structure due to the huge personal risk thats involved for the individual business owner. 2. What is a Partnership? In this structure, two or more people are the owners. They usually put similar amounts of money and/or time into the business and are all responsible for running it. They also incur the debt for the business and can be held personally liable if it were to fail or be sued for the debts. 3. What is a Limited Partnership? In a limited partnership there are at least two partners involved, but they dont necessarily have the same level of responsibility - or authority. One or more of the partners will take part in decision making and the others are silent partners. 4. What is a Limited Liability Company (LLC)? This is the best and most flexible business structure and one of the easiest to set up. Its a good entity for both small and large businesses. It provides personal asset protection and offers an easy format for distribution of profits and losses. With this entity structure the liabilities of the company are only taken from business assets, not the personal assets of those who own the LLC. 5. What is a C-Corporation? There are two ways to file as a corporation: C-Corporation or S-Corporation. The C-Corp is the most structured, and rigid form and the business profits are taxed at both the corporate level and the stockholder level. In this entity, there is no limit to the number of stockholders. This structure is taxed as a separate entity, unlike the S-Corp. 6. What is an S-Corp? This is also a corporation, but its limited by the number of stockholders, which is a maximum of 75. One of the advantages of this type of business structure is that the profits are not double taxed like they are in a C-Corp. This structure is a flow through entity. This means the profits or losses flow through to the individual personal tax returns of the stockholders and are taxed on the individual tax returns.

When it comes to financial institutions, they generally view the LLC and corporation structure as higher rated business entities. By choosing one of these business structures you present a professional image to them and they are more likely to extend business credit and trade credit to your business.

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