Business-owners usually don’t spend much time thinking about the legal and tax consequences inherent in their choice of a business entity. Instead, the business owner is understandably worried about carrying on his/her business to earn a profit or accomplish his/her charitable objectives. Nevertheless, in spite of this legitimate concern, it is important to understand the ramifications of your business entity.
Take, for instance, the limited liability company (“LLC”). The LLC is seemingly the most commonly used business entity because it has several favorable aspects. The “LL” in the LLC ensures that the liabilities of a business do not pass to the owner, so long as normal business formalities and the separate existence of the LLC is observed (See Piercing the Corporate Veil). It is important to note that the LLC is the legal entity, but under federal and state law it may be taxed as a “disregarded entity” (i.e., sole proprietorship), partnership, C Corporation, or S Corporation. And although it may seem favorable to take the simplistic route and elect to be taxed as a sole proprietorship, there are favorable advantages in being taxed as a S Corporation, including the possibility to mitigate payroll taxes (e.g., FICA taxes).
If you are creating a business in Missouri, contact us. We can help with the formation of a partnership, LLC, corporation, and the registration of fictitious names.