One of the key decisions that you’ll need to make when starting your Oklahoma business is how it should be structured. If you are the company’s sole owner, you may want to run it as a sole proprietorship or as a limited liability company. If the company has multiple owners, it may be worthwhile to operate as a partnership, LLC or corporation.
Sole proprietor or partnership?
Perhaps the best reason to run a company as a sole proprietorship or a partnership is that it is easy to do so. There is little or no paperwork to fill out as part of the business formation process, and your organization will likely be classified as a pass-through entity. This means that the company’s profits or losses are recorded on your personal tax return. However, some drawbacks of these structures include a lack of liability protection as well as an inability to raise equity.
The pros and cons of the corporate structure
As a corporation, you and your business are classified as separate entities. Therefore, your personal assets are unlikely to be vulnerable in the event that a judgment is issued against your company. It is worth noting that your company’s earnings are first taxed at the corporate level, which means that you may have less to distribute to yourself and the other owners.
What should you know about forming an LLC?
An LLC gives you enhanced liability protection without the need to operate your business as a corporation. Your company will be classified as a sole proprietorship or partnership by default depending on how many owners the company has. However, you can change this by filing Form 8832 with the IRS.
The structure of your company will largely depend on its needs. If you’re just starting out, it may be best to operate as a sole proprietor. However, if you need funding or liability protection, you may want to consider a different structure.