What is the Best Way to Structure My Entity? Part 1

<p> There are many different ways to structure an entity.  The most common question asked about entity structuring is what is the best way to structure entities?  There is really not one correct answer to this.  The answer can change based on whatever financial goals you have.  This article will simply give you a basic overview of the entities that are available. <p/>

<p> There are five different business structures.  They are the sole proprietorship, general partnership, Corporations (“S” and “C”), Limited Partnerships, and Limited Liability Companies (LLC’s).  There are many differences in tax deductions and asset protection that make some of them more desirable than the others.  Here are the basics of each. <p/>

<h2> Sole Proprietorship <h2/>

<p> The sole proprietorship is the simplest form of doing business.  All starting a sole proprietorship takes is for you to decide that you want to go into business.  There are no documents necessary.  Just choose a name, print some business cards, and you are ready to go. <p/>

<p> The one benefit of doing business as a sole proprietor is the simplicity of setting it up.  Yet there are many problems with the sole proprietorship.  The largest problem is the lack of asset protection.  This doesn’t worry many people because they believe that only their business assets are in danger.  This is simply incorrect.  Your personal assets can also be in jeopardy if your business gets sued.  This includes everything from your house, to your car, and even your personal bank accounts.  This is of course on top of losing all of your business. <p/>

<p> This risk is absolutely unnecessary and easily avoided.  Just in case the prior reasons weren’t enough to keep you from doing business as a sole proprietor there is another reason.  It is self employment tax.  Self employment tax (it's actually more of a self employment penalty) will take approximately seven percent of your hard earned money on the first $85,000 you make in income.  If you do the math that is about $6,000 per a year!  When put into perspective this is a lot less than the cost of setting up a corporation, making there no reason to be a sole proprietor.  Basically I recommend that you never do business as a sole proprietor. <p/>