NYWIB Business Structure Planner
Worried about liabilities & lawsuits?
Yes
No
Two or More
Individual
Corporation
- Legal entity separate and distinct from owners (shareholders)
- Shareholders (owners) liability is limited
- Less expensive to set up than LLC in New York State
Subchapter-S Taxation
Advantages
- No federal income tax to the corporation
- Income taxed to shareholders personally
Disadvantages
- Shareholders limited to US citizens or permanent residents
- One class of stock
- Max 100 stockholders
- Five other limitations
- Limitations on certain expense deductions
- May require additional tax filing annually in NY state
Subchapter-C Taxation
Advantages
- Pays corporate income tax
Disadvantages
- Double taxation on dividends when declared
LLC
Advantages
- Members’ liability limited
- LLC income taxed to members personally
- Foreign ownership OK
- Greater flexibility in allocating profits/ losses and in delegating responsibilities
- No limitations on membership in other legal entities or partnerships
- May avoid state and federal security laws
Disadvantages
- Maximum of 30 years in duration
- No more than TWO of four characteristics of a corporation
- Must adopt a written operating agreement
- Must publish notice of LLC formation
1x/ week in two newspapers for six weeks in New York State - State taxes based on number of members
No
Two or More
Individual
LLC
Advantages
- Members’ liability limited
- LLC income taxed to members personally
- Foreign ownership OK
- Greater flexibility in allocating profits/ losses and in delegating responsibilities
- No limitations on membership in other legal entities or partnerships
- May avoid state and federal security laws
Disadvantages
- Maximum of 30 years in duration
- No more than TWO of four characteristics of a corporation
- Must adopt a written operating agreement
- Must publish notice of LLC formation
1x/ week in two newspapers for six weeks in New York State - State taxes based on number of members
Partnership
Advantages
- Easy to organize and register
- Possibility of greater financial strength
- Combined managerial skills and judgment
- Business entity not taxed federally
- Partners report their share of profit or losses on their individual tax returns
Disadvantages
- Unlimited personal liability of partners
- Divided authority for decision making
- Needs partnership agreement and lawyer to create one
- Can be hard to find suitable partners
- Harder to raise additional capital
Sole Proprietorship
Advantages
- Easy to organize, start and register
- Owner makes all the decisions
- Minimum legal restrictions
- Owner gets all the profits
- Business easy to discontinue
- No separate business entity to tax
- Profits/losses reported on owner s personal tax return
Disadvantages
- Unlimited liability of owner
- Hard to raise outside capital
- Business terminates at owner s death
- Business endangered by owner s illness
- Big responsibility for making all decisions