Business Structures | The Biz Knows

Business Structures

Business structure is the association an owner has with the business. In other words, this is the legal relationship between the business owner and the business itself. The business structure you choose will determine your personal liability as a business owner, the taxes paid to the IRS, your ability to borrow money, and how much control you have in the decision making process.

At times business owners are quick to make a decision on the type of business structure, not considering the pros and cons. Some business structures will limit personal liability, some will not, but still offer some benefits. Listed below are the most common types of business structures, along with advantages and disadvantages of each.

Sole Proprietorship

Pros of Sole Proprietorships

Sole proprietorships are the most common type of business structure, they are easy to form and give complete control to the business owner.

Sole proprietors do not have taxes withheld from their business income so you will generally need to make quarterly estimated tax payments if you expect to make a profit. These estimated payments include both income tax and self-employment taxes for Social Security and Medicare.

The owner and business act as one entity.

Profits are taxed at the owner’s individual federal tax rate, therefore the owner is not required to file additional corporate paperwork but encouraged to keep business records to comply with federal tax requirements

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