In the dynamic realm of US business structures, misconceptions often overshadow the nuanced realities of Proprietorship, Partnership, LLC, S-Corp, and C-Corp. This article unravels the myths surrounding these entities, aiming to provide entrepreneurs with a clear understanding of the facts. From the necessity of registering a Proprietorship to the intricacies of Limited Partnership and the unique features of LLC and S-Corp, we delve into the truths that shape strategic decisions. As we navigate the complex landscape of US business entities, this exploration will empower readers to make informed choices, dispelling uncertainties and fostering a more confident entrepreneurial journey.
Q.1 The Proprietorship Firm needs to be registered like a company?
Ans. It is not necessary to register a proprietorship firm for starting a business. Although some states provide the option to register the proprietorship concern, however the same is not mandatory.
Q.2 The business will be taxed separately in case you start sole proprietorship business?
Ans. The sole proprietorship business will never be taxed separately. The income of the business will be clubbed in the income of the individual and there would be only one tax.
Q.3 The liability of the members is unlimited?
Ans. There are three forms of Partnership. General Partnership (where all member liability is unlimited); Limited Partnership (where few members liability are limited and few member liability are unlimited) and Limited Liability Partnership (where liability of all members are unlimited).
Q.4 The limited partnership is just for theoretical purpose?
Ans. Limited Partnership is best in the cases where capital needs to be raised from few members who don’t have to bear the brunt of unlimited liability clause. For ex- In case of real estate, capital may be infused by some individuals who don’t want to bear unlimited liability due to the actions of general partners. In cases like this, limited partnership is best suited.
Q.5 LLP and LLC are same?
Ans. No, these two entities are different. LLC can be formed even by 1 member and LLC needs to be incorporated. These are not the cases in case of LLP.
Q.6 LLC are not taxed separately and incomes are taxed in member’s hand?
Ans. LLC is the only form of the entity which has the liberty to choose its own form of taxation. It can choose to be taxed separately or it can choose to be taxes as a disregarded entity.
Q.7 S-Corp formation process is difficult?
Ans. S-Corp is never formed. An entity is formed as a C-Corp and then its chose to be elected as S-Corp.
Q.8 C-Corp and S-Corp are same except taxation policy?
Ans. There are some other differences also apart from taxation policy in case of C-Corp and S-Corp. S-Corp can have maximum of 100 investors and all the investors in S-Corp have to be US resident.
Q.9 C-Corp can be run like any other form of business entities, in terms of statutory compliances?
Ans. The process of running C-Corp is totally different. The statutory compliances of C-Corp are much higher as compared to other form of entities.
Q.10 C-Corp are taxed separately from its members but how there is double taxation?
Ans. C-Corp first pays its tax directly to the state. Then in case if it want to distribute the profit to its members, then it has to be done in the form of dividend. The dividends are again taxed in the hands of the members, thus making it a double taxation.
Conclusion: Understanding the reality behind US business entities is crucial for informed decision-making. Debunking myths about proprietorship, partnership, LLC, S-Corp, and C-Corp sheds light on the intricacies, enabling entrepreneurs to navigate the business landscape with confidence. Choose wisely, armed with the right knowledge.