Types of Business Entities
Every choice and necessary business action you take in the start-up phrase of your craft business can vary based upon the type of business entity you select. If you don’t have any prior experience working for yourself, it’s a hard decision. Luckily, you only have three choices from which to choose: sole proprietorship, flow throughs or corporation.
A quick discussion of how limited liability plays into the section of a business entity. Key is checking your state statutues.
Here’s a brief comparison of the three types of entities
The main advantage for a craft business interested in forming a corporation is the limited liability aspect that applies to shareholders and officers of the corporation. A big disadvantage is having to learn how to write payroll checks.
Partnerships are a form of business entity that can include both general and limited partners. Find out about their formation, taxation and how partners get paid.
The S corporation is another example of a flow-through type of business entity. It can be compared to a corporation that is taxed as a sole proprietorship. Find out more about how S corporations work.
Limited Liability Companies are a fairly new type of business entity. Well, new when you consider that corporations and partnerships have been in existence for centuries and even the S-Corp, a runner up newbie was created decades ago. LLCs have several unique advantages, including a flexible taxation system.
Most brand new arts / craft businesses start out as sole proprietorships because they are the easiest and cheapest type of business entity to start and maintain.
You may have heard there is a new type of business entity - a Series LLC. Basically this entity allows many separate limited liability companies to operate under the umbrella of a parent LLC. The purpose? Simplifying the protection of business assets.
