Your Louisiana business will in some cases start out as a sole proprietorship. This means that you and your company are the same entity for legal and tax purposes. However, you have the option of converting your business to a partnership, a limited liability company (LLC) or a corporation. There are several variables that you’ll want to consider prior to choosing a structure that works best for your business.
Sole proprietorships are easy to start and dissolve
Almost anyone can start a sole proprietorship simply by having goods or services that they are willing to sell. Each year, you will report your profits or losses on Schedule C, which is due on the same day as your personal tax return. To dissolve your business, you simply stop offering goods and services to your customers. The company will also dissolve automatically when you die.
If you want to limit your liability
One of the key drawbacks to operating a sole proprietorship is that you are personally liable for anything that happens to an employee or customer. This means that your assets could be seized to pay a judgment against your firm. Creating an LLC or corporate entity means that judgments would be satisfied using company assets only.
Tax rules may favor LLCs or corporations
If you operate as an LLC or a corporation, you may be able to take a portion of your salary as an owner’s share of profit or as a dividend. These payments may be exempt from traditional self-employment taxes or may be taxed at a lower marginal rate than payments classified as wages. A business law adviser can help you determine if the tax benefits are worth using either of these structures.
Choosing a structure is one of the most important decisions that you’ll make as an owner. Ideally, you will make this decision while creating your business plan. However, you will likely have the opportunity to change your mind if you want or need to do so after your company is officially open.