Choosing the Right Entity for Your New Venture

Why choice of entity matters

Starting a new enterprise is an exciting and pivotal time for those involved. Whether you are an entrepreneur launching a startup, investors structuring an acquisition, or a business creating a subsidiary, the early decisions you make in this process can have long lasting implications. One of the most important choices from a tax planning perspective is your choice of entity.

Choosing the right entity

The type of entity you select is one of the most important early decisions for a new business. Possible entity structures include:

• S-Corporation
  • An S-Corporation passes corporate income, losses, deductions, and credits directly to shareholders, who report them on personal tax returns. This avoids double taxation and is taxed at individual rates.
• C-Corporation
  • A C-Corporation is a separate legal entity from its owners (shareholders), offering limited liability protection by shielding its shareholders from personal liability for the corporation. Profits are taxed at the corporate level and again when distributed to shareholders, creating double taxation.
• Limited Liability Company (LLC)
  • An LLC combines corporate liability protection with partnership-style pass-through taxation. Owners (members) are generally not personally liable for company debts, unless the LLC elects corporate taxation.
• Limited Liability Partnership (LLP)
  • An LLP is a type of general partnership where each partner has limited liability for the debts of the partnership. Partners are usually shielded from personal liability for the misconduct of the partnership itself, as well as the other partners.

Aligning your entity choice with business goals

Each entity type offers comparative advantages depending on the purpose of the entity and its short and long-term goals. When weighing your options, it’s important to consider ownership structure, what level of liability protection makes sense, and plans for how profits will be used. The tax implications are equally important, both for the organization itself and for the individuals involved.

There is no single answer that works for every venture. The important factor is to align your entity choice with your strategy from the start so that these early decisions set you up for long-term success.

Our team works closely with clients to understand key facts about the new entity, including the number of owners, level of asset protection and desired investment structure. Each factor is then evaluated to determine its level of importance in the decision-making process.

Contact your Keiter Opportunity Advisor to discuss which entity structure is best for your unique situation and ensure your decision supports long-term success.