Choosing the type of business entity that’s right for your business is a difficult decision and one of the most important decisions involved in the start-up phase of a business. The type of entity you choose has a direct impact on the way your business will pay taxes, the method you’ll use to draw profits from the business and the extent of personal liability for debts and obligations of the business.
A Sole Proprietorship is the easiest and least costly method of starting and operating a business. However, there is absolutely no liability protection between a sole proprietor and his/her business and there are no tax benefits.
A Corporation is a separate legal entity and carries with it limited liability protection for its owners. Liability is generally limited to an owner’s investment in the corporation. An “S” election will permit profits and/or losses to be passed directly through to the owners and not taxed at the corporate level.