Comprehensive Guide to Choosing a Business Structure in Arizona
Gilbert’s Business Attorneys Explain the Options for Structuring Your Business
The way you choose to structure your business can have long-term repercussions, including how you are able to claim your profits, how you can pass on ownership, and even how you can make decisions for the business. It’s important that you spend some time learning about the different business structures and what the pros and cons are of each before you choose one. Changing the structure after it is created might be possible, but if so, it can be very expensive, aggravating, and inconvenient. So it is important to understand from the start what business structure makes the most sense for you.
Talk with a local business attorney in Gilbert to thoroughly review and understand your options and then to draw up the proper documentation. Here are a few of the business structures you might consider:
A sole proprietorship is the simplest structure you can have for your business. It doesn’t even need a formal filing. Your business is just run by you, the owner, and you enjoy both the profits and losses. You make all decisions for the business, and you bear all the liability. At the end of each year, you file a separate schedule for your business profits and losses with your personal tax return.
If you want to run your business with another person, you might consider forming a general partnership. This arrangement is similar to a sole proprietorship, but it is shared by two people. The two people share in the profits and losses, which are reported at the end of the year on both personal returns. Usually general partnerships are not a great choice, because they create extensive liability for the owners, which is usually the opposite of what a business owner wants. If yours is a situation where a general partnership is appropriate, your Chandler business attorney can help you better understand the liability issues, and how profits and liabilities are shared and how to document them.
You may have a partner who wants to invest but who doesn’t want to share in running the company. Or there may be another arrangement where the role of one partner is limited. In that case, you might consider a limited partnership, which outlines what kind of responsibility and liability each partner would have. Special paperwork is required to register an LP with the state, so you will need to work with a business lawyer in Gilbert to understand your responsibilities.
Limited Liability Partnership
A limited liability partnership is a specialty business structure that will most certainly require consultation with a Chandler business attorney to understand. In this arrangement, and in a limited liability limited partnership, you can elect limited liability for your general or limited partners. In these arrangements, partners generally report profits and losses on their personal taxes. The business itself typically does not have to pay federal taxes.
Limited Liability Company
A limited liability company has elements of both a limited liability partnership and a corporation. These arrangements give owners limited personal liability, while also allowing them flexibility in their management. The arrangement also allows for pass-through taxation. Limited liability companies are also very flexible when it comes to control issues and the distribution of income among owners, making them a favorite of business owners in Arizona and other states. Talk to a business attorney serving Gilbert to better understand how an LLC arrangement would impact your specific business.
An S Corporation is a commonly used shorthand term for a Subschapter S Corporation. This arrangement allows you to operate as a corporation while still maintaining some of the flexibility of a limited partnership. Under this structure, the company does not have to pay federal corporate income tax–income “flows through” to the owners and is reported on their tax returns. However, you also have to meet certain requirements in order to structure your business this way. Talk to a Chandler business lawyer to find out how you can qualify.
If you plan to run a charity, the best option is to form a non-profit corporation. Under this arrangement, you would not be required to pay taxes on donations or other income. However, that money must be used for the benefit of the organization. You also have to meet criteria to qualify for this business status. Typically, you have to show that your organization is devoted to a charitable, religious, scientific, educational, or literary purpose. Your organization may also be devoted to such things as public safety, the prevention of cruelty to children or animals, or the fostering of youth sports.
Work Closely With a Business Attorney
There are many options for structuring your business, and the choice you make will have a big impact on the kind of taxes you pay, the profits you’re able to reap, and the rules governing your business. You should consult with a Gilbert business attorney to understand each of these options and how they would impact your business, specifically. Your attorney can then draw up the documentation for you to ensure that your business starts on a solid foundation.
The attorneys at Denton Peterson Dunn are ready to help you. Our attorneys have extensive experience drawing up the founding paperwork for LLCs, corporations and other kinds of businesses. We can help you choose the right structure for your business, and then ensure that you have the right paperwork in place to protect your interests. Call Denton Peterson Dunn today to schedule a consultation with a business attorney and get started.