Business Structures Overview
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Sole Proprietorship
A business owned and operated by one person. The owner is personally responsible for all aspects of the business, including debts and taxes. Offers no liability protection. -
S Corporation
A corporation that passes all profits and losses to shareholders to avoid double taxation. Requires a special election with the IRS. -
Partnership
A business owned by two or more people who share ownership. Varieties include general partnerships, limited partnerships, and limited liability partnerships.
Comparison: S Corp vs. Sole Proprietor
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Sole Proprietorship
- Offers no liability protection.
- Owner’s personal assets can pay business debts.
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S Corporation
- Passes profits and losses to shareholders.
- Requires a special election with the IRS.
Tax Implications
- Sole Proprietor vs. S Corp Taxation
- Sole Proprietorship: Pay self-employment tax on net income.
- S Corporation: Subject to taxes but net income reduces after salary payment.
Capital and Liability Concerns
- Capital and Liability Challenges
- Sole Proprietorship: Struggles to raise capital, personal assets can be seized in lawsuits.
- Partnerships and S Corporations: Offer varying degrees of liability protection.