Choosing the right corporate structure is a critical step for any entrepreneur in the United States. This decision not only affects the amount of taxes your business will pay, but also your ability to raise capital, your ownership structure, and your degree of personal liability. In this article, we explore the different corporate structures available in the US and their business and tax implications.

Main Corporate Structures in the US

1. Individual Entrepreneur (Sole Proprietorship)

• Benefits: Easy to set up, with little paperwork and low startup costs. Full
  control of the owner over the company.
• Tax Obligations: Income is reported on the owner’s personal tax return. A
  personal income tax is paid, including self-employment tax (Social Security
  and Medicare).

2. Partnership Benefits:

• Easy to form, with more than one owner. Combine resources and talents.
• Tax obligations: You do not pay income taxes at the corporate level.
• Income/losses are passed on to the partners and reported on their personal
  tax returns.

3. C Corporation Benefits: 

• Personal liability protection for shareholders. You can issue shares
  and attract investors.
• Tax obligations: Subject to corporate taxes. Dividends distributed to
  shareholders are also taxable (double taxation).

4. S Corporation Benefits:

Avoids double taxation of C corporations. Income and losses are
passed on to shareholders and taxed at the personal level. Tax obligations: Does not pay taxes at the corporate level. Income is
reported on the shareholders’ personal tax returns.

5. Limited Liability Company (LLC – Limited Liability Company)

• Benefits: Offers personal liability protection. Flexibility in the management
  and distribution of profits.
• Tax obligations: You can choose to be taxed as an individual entrepreneur,
  partnership or corporation. By default, it is treated as a partnership or sole
  proprietorship, with taxes passed on to the members.

Executive Summary

Choosing the right corporate structure is critical to the success and sustainability of your US business. Here are the five key points to consider:

• Individual Entrepreneur: Ideal for sole proprietorships, with simplicity in
  management and personal tax declarations.
• Partnership: Suitable for businesses with multiple owners, with taxes passed
  directly to the partners.
• C Corporation: Beneficial for companies seeking to raise capital through
  the sale of shares, but with double taxation.
• S Corporation: Combines the protection of a corporation with the tax
  advantage of avoiding double taxation.
• LLC: Offers flexibility and personal liability protection, with options in tax
  treatment.

Each structure has its own benefits and responsibilities, and the choice depends on
individual circumstances and business objectives.

This article has been written to provide an overview of corporate structure options
in the US and their tax implications. For personalized and detailed guidance on
which structure best suits your business needs, contact us for an expert
consultation.