At YES Leasing, no two clients of ours are alike! Our clients work across a wide range of industries, and because of this, their equipment and financing needs are unique. However, all business owners that we work with – both old and new – have had to answer an identical question: which legal structure is the best fit for my business?
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Choosing a legal structure is an important decision every business owner must make – and a decision that will have a significant impact on your taxes and the extent of your personal liability. We know that every business owner’s situation is unique, so we recommend consulting with a business attorney prior to making this important decision.
Here are some of your options:
Sole Proprietorship
The sole proprietorship is the simplest business form. It is not a legal entity – there is no legal distinction between the owner and the business. The owner is in direct control of all elements and is therefore personally accountable for the finances of the business.
The sole proprietorship is the most popular business structure in the United States. While it is generally the easiest business form to set up and the least paper intensive, there are some potential drawbacks that must be considered. The owner of a sole proprietorship has unlimited responsibility for all losses, debts and liabilities should something happen to the business. Also, if there are plans to expand in the future (for example, by finding investors or getting a business loan), a formal business structure – that is, an LLC or corporation – would be needed.
Limited Liability Company (LLC)
A limited liability company (LLC) is a hybrid legal structure that provides the limited liability features of a corporation and the tax benefits of a sole proprietorship or partnership. Unlike a sole proprietorship, a LLC can have an unlimited number of shareholders, providing the business greater flexibility in raising capital for growth. Business profits are distributed according to the LLC’s shareholder agreement, and each owner reports his/her share of business profits or losses on their personal tax returns.
S Corporation
Unlike a sole proprietorship, S corporations are considered by law a unique entity separate from those who on it. While this structure limits the financial liability for which the shareholders are responsible, liability protection is limited and may not protect shareholders from all litigation. An S corporation may only have one class of stock and cannot have more than 100 shareholders.
The tax advantages presented by S corporations are attractive. The business itself is not taxed. Instead, income and losses are passed through to shareholders’ personal tax returns. As a business owner who works for the company, you must pay yourself “reasonable compensation” or the IRS may reclassify additional corporate earnings as “wages.”
C Corporation
C corporations (or “corporations”) are independent legal entities owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. C corporations are generally more complex than other business structures because they usually have costly administrative fees and complex tax and legal requirements. Because of these complexities, corporations are generally suggested for established, larger companies with multiple employees.
For more information and guidance on business structures, please contact your business lawyer or accountant. If your company needs new or additional equipment to support the growth of your operations, YES Leasing is here to help. We offer individuals and businesses like yours equipment financing so you can start earning additional profits today! Applying is easy – simply fill out our online application here.
