One of the most important decisions you must make when starting a new business is choosing an entity type. The right entity type allows the business owner to minimize taxes, reduce liability exposure, ensure business operations continue after the death of the owner and ensures the financing ability of the business. Once the right entity is chosen, if an EIN number is required, you can apply online 24/7 at the IRS EIN Tax ID website.
Choosing the Right Entity
There are four basic types of entities. Each one of these entities has benefits and drawbacks based on the finances of the business, what the business provides, as well as the number of owners it will have.
- Sole Proprietorship: This is the most common business structure. Forming this entity is simple and the owner remains in complete control. However, the owner of a sole proprietorship is personally liable for all financial obligations.
- Partnership: This type of entity requires two or more people who share in both the profits and losses of the company. While a Partnership has benefits when it comes to taxes, there is a drawback when it comes to being personally liable for the financial obligations of the company.
- Corporation: This entity type can be taxed and can also be held liable for the company’s actions. However, the owners avoid personal liability. The key drawback is the cost of forming the corporation as well as the extensive record keeping required.
- Limited Liability Company (LLC): The benefits of both the Partnership and Corporation comprise the key advantage of an LLC. The owners are not personally liable for financial obligations and profits and losses of the business “passed through” to the owner without taxation. If you decide to choose LLC as your perfect fit, it would be a good idea to do some research about LLC operating agreements and get a better understanding of that topic.
The best way to know what entity type is best for your company considers consulting with a business attorney. Once you have, allow the experts from IRS-EIN-Tax-ID website to help in the application process for your business EIN, Trust Tax ID, or Estate Tax ID.