Summary:
When starting a business, it’s important to understand the legal framework you’re working within because not every industry has the same rules. Our guest and owner of three businesses, Michael Farca, has a couple tips for up-and-coming entrepreneurs about how different businesses are structured.
What Are the Types of Business Structures?
Before you can officially set up a business, you’re required to send some information about your new business with the IRS for tax purposes. One of the things you have to establish with the IRS is what type of business you own.
The IRS recognizes five types of businesses:
Liability Protection & Tax Laws
It’s essential to know what type of business you’re interested in running because it will affect how the business is run. Most importantly, the business structure you choose dictates how much you’ll be paying in taxes and how liable you are as a business owner. Each structure has its own set of pros and cons.
Sole proprietorships and partnerships tend to have high liability risks, but both of them may be eligible to be reclassified as LLCs. Both C and S Corporations have built-in liability protection but will usually require extensive tax services as compared to a partnership or sole proprietorship.
Starting your own business can seem like a colossal task, but it doesn’t have to be. Follow Michael Farca on Twitter @mfarca to stay updated on how to manage your business.
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