How to Set up a Business Entity to Obtain Corporate Credit
As you begin a new business venture, you have an important decision to make right at the beginning of your venture. Now you probably have already decided what kind of business - and even the name, but the entity structure is the most important. You need to know what type will be the easiest and most valuable for your company. Have you heard the words LLC, C-Corp, and S-Corp? If you answered yes, but dont really understand what they are, then read on.
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:
Sole Proprietorship " This is a one-person show in which the person running the business keeps all the profits, but also carries all the responsibility and liability. This is the least desirable form of business structure because of the huge personal risk that is involved for the business owner. Partnership " In a partnership, two or more people are the owners of the business. They usually put similar amounts of money and time into the business and they are all responsible for running the business. They also incur debt for the company and can be held personally liable if the company were to fail or be sued for debts. Limited Partnership " In a limited partnership there are at least two partners involved in the business, but they do not necessarily have the same level of responsibility or authority in the company. One or more of the partners will take part in decision making and the others are silent partners. Limited Liability Company (LLC) " This is the most flexible business structure and one of the easiest to set up. It is a good entity for a small or large business because 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. C-Corporation - There are two ways to file as a corporation: C-Corporation or S-Corporation. The C-Corp is the most structured form and the profits are taxed at both the corporate level and the stockholder level. There is no limit to the number of stockholders. This structure is taxed as a separate entity, unlike the S-Corp. The S-Corp is also a corporation but is limited by the number of stockholders it can have, which is 75. One of the advantages of this business structure is that the profits are not double taxed like they are in a C-Corp. This structure is a flow through entity, which means the profits and losses flow through to the personal tax return of the stockholders and are taxed on their individual tax return.
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.
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:
Sole Proprietorship " This is a one-person show in which the person running the business keeps all the profits, but also carries all the responsibility and liability. This is the least desirable form of business structure because of the huge personal risk that is involved for the business owner. Partnership " In a partnership, two or more people are the owners of the business. They usually put similar amounts of money and time into the business and they are all responsible for running the business. They also incur debt for the company and can be held personally liable if the company were to fail or be sued for debts. Limited Partnership " In a limited partnership there are at least two partners involved in the business, but they do not necessarily have the same level of responsibility or authority in the company. One or more of the partners will take part in decision making and the others are silent partners. Limited Liability Company (LLC) " This is the most flexible business structure and one of the easiest to set up. It is a good entity for a small or large business because 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. C-Corporation - There are two ways to file as a corporation: C-Corporation or S-Corporation. The C-Corp is the most structured form and the profits are taxed at both the corporate level and the stockholder level. There is no limit to the number of stockholders. This structure is taxed as a separate entity, unlike the S-Corp. The S-Corp is also a corporation but is limited by the number of stockholders it can have, which is 75. One of the advantages of this business structure is that the profits are not double taxed like they are in a C-Corp. This structure is a flow through entity, which means the profits and losses flow through to the personal tax return of the stockholders and are taxed on their individual tax return.
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.
About the Author:
Find out more about how to set up your business structure correctly and learn the advantages and disadvantages of each kind of entity. Learn the secrets of how to present your company as an established business so that you can get lines of credit from lending institutions and obtain vendor credit without risking your personal FICO scores.
posted by Credit Counseling at
5:22 PM
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