King's Professional Services
Bookkeeping and Tax Service
1203 Askins Road, Hartsville, SC 29550
843.383.6763   /   866.383.6763
All Rights Reserved
King's Professional Services ~ 1203 Askins Rd. ~  Hartsville SC 29550
Business Structure:
Business Structure for the Small Business and
Self Employed Business Owner
Now that you have decided to start your own business, let us
help you get started in the right direction.  The following
information is a short summary of the various business
structures you can choose from.

Choosing a Business Structure

There are various types of "Business Structures" to choose
from when you start your business.  Understanding each type
of structure will help you make the right decision for your
business.

You can choose to begin as a "Sole Proprietorship" and
change to another business structure as your business
grows.  

Before you decide on the name of your business, check with
your state corporation licensing office.  You can not
incorporate a business name if another corporation has
already registered the name with your state. Two
corporations with the same name within the same state will
not be approved. Even if you are not planning to incorporate
at first, this is a wise step to take in the event you decide to
incorporate later.  

Each business structure requires different tax reporting and
state licensing.  

Sole Proprietorship

As a sole proprietor you are the responsible party of your
business.  This business structure has the least restrictions
than other types.  As the owner, you assume full liability for
all of the debt of your business.  

Your profit or loss is treated as personal income and is
reported on your 1040 Individual Income tax return using
Schedule C.

Partnership

A business that is owned by more than one individual or
business is considered a partnership.  

A partnership is required to file an annual information return,
form 1065 Partnership return, with the Internal Revenue
Service.  Partners are not considered employees of the
company.  The profit / loss passes to each partner based on
their percentage of ownership.  The income is then reported
on each partner's 1040 Individual Income Tax Return.

The partners share in the liabilities of the partnership based
on their percentage of ownership.

LLC - Limited Liability Company

An LLC is a business structure that is allowed by state
statute.  When choosing this business structure you file an
application with the state.  

With this business structure, the business owner has limited
liability for the debts and actions of the company.  

Currently there is not an information return to be filed with
the Internal Revenue Service.  If the LLC is comprised of one
owner, the profit / loss passes to the individual's 1040
Individual Income Tax return using Schedule C.  If the LLC is
comprised of more than one owner, the company must file
form 1065 Partnership Return and the profit / loss will then
pass to the various owners.

Corporation

To form a corporation, a business is required to file an
application with a state.  Annual reporting is required on form
1120 Corporation Tax Return.  As a stand alone business
structure, the corporation pays taxes and distributes profits
to shareholders.

With a corporation the business owners do not have any
personal liability for the business.  As a shareholder of the
business, you the business owner, will pay taxes on the
shareholder distributions paid to you.  Understand that this
generates a double taxation situation.  The corporation
cannot expense the distribution and therefore pays taxes on
the distribution.  The distribution is considered taxable
income to the shareholder.

Corporate books are to be kept with annual meetings
documented.  Stock certificates can be issued to
stockholders.
A Board of Directors and Officers are selected and
documented.

S-Corporation

Most small businesses choose to become an S-Corporation
in order to avoid the double taxation of a C-Corporation.  The
business can be owned by an individual or a group of up to
75 individuals.  

The S-Corporation is required to file an annual information
return 1120-S S-Corporation Income Tax Return.  The profit /
loss of the business will flow to the individual 1040 Individual
Income Tax return.  

Corporate books are to be kept with annual meetings
documented.  Stock certificates can be issued to
stockholders.  A Board of Directors and Officers are selected
and documented.

The officers of the company usually have personal liability for
the debts of the company.  


Business License

Business licensing will vary state to state.  You are
responsible to check with your city, county / parish / borough,
and state for licensing requirements.  Even a home based
business may require licensing.  Always check before you get
started.