Business Entity Classification Support in Carrboro
When you set up your business, the classification you choose can have a big impact on your tax payments. To avoid headaches and unnecessary payments, it’s important to select the classification that is the most beneficial.
If this process is overwhelming, you can rely on our team of small business accountants to help you choose the right classification for your Carrboro business.
Picking the Best Entity for Your Carrboro Small Business
Choosing an entity/classification is part of the process of starting a business and every entrepreneur must do it. There are several types of business classifications, which makes this process anything but straightforward. That’s why so many local businesses enlist our help. Our accountants and CPAs are experienced with small businesses, including selecting classifications.
What Is an Entity?
Entity refers to the classification of the business’s structure. Businesses can take a variety of forms and your business may meet the requirements for more than one classification, which is why it’s important to ask a professional if you’re unsure. Even if your business qualifies for more than one classification, it’s likely that one of the entities is more beneficial than the other.
The types of entities your business can be classified as:
- Sole Proprietorship – This is the simplest business form. Under a sole proprietorship, you can operate a business without it being a legal entity. A sole proprietor is the business’s sole employee and the person that owns the business is personally responsible for its debts.
- Corporation – Corporation refers to a company or group of people who are authorized to act as a single entity and are seen as such in the eyes of the law.
- Sub-chapter – S (also known as an S Corp) is a closely held corporation that does not pay federal income taxes. The income is divided among the shareholders who then claim the income as personal income and pay federal income tax on the money they receive.
- Sub-chapter – C classifies nearly every for-profit venture unless the corporation decides to make it an s-corp. The biggest difference for accounting purposes is that a c-corp is subject to double-taxation being taxed both at the level of income to the company and the individuals who pay income taxes.
- Limited Liability Company (LLC) – This is a popular option for startups. An LLC limits the liability of the partners while giving them tax options. Partners have the option to pay their taxes as an individual or as a corporation.
- General Partnership – This classification is similar to a sole proprietorship, but has multiple partners instead of one owner. In a general partnership, all partners operate jointly with unlimited liability, meaning that their personal assets are liable to the obligations of the partnership.
- Limited Liability Partnership (LLP) – This is a partnership of two people where one assumes personal responsibility and the second assumes limited liability. It’s important to know that in an LLP, the full liability partner holds the rights to make decisions and changes to the business, while the limited liability partners are not authorized to make these changes.
- Professional Corporations & PLLCs – These classifications are generally used by professionals in industries that require a license (attorneys, accountants, chiropractors, etc). Most of the time, people that form PLLCs are subcontractors who hold a state license.
- Non-Profit or Benefit Organization – These are charitable organizations, sometimes completely exempt from taxes. This classification is not recommended for small businesses.
Do You Need Help Choosing the Right Business Class?
Set your business up for success by choosing the right classification. If you’re not sure which entity is right for you, our Carrboro small business accountants can help. Our goal is to help you establish and manage your business so you can be profitable for years to come.
Contact us today to learn how C.E. Thorn, CPA, PLLC has helped Carrboro area businesses reduce their costs and limit their tax payments. Give us a call at (919) 420-0092 or complete the online contact form.