Businesses come in all types and sizes and small businesses are the lifeblood of America. When starting a skin care business, the owner must decide whether to establish it as a sole proprietorship, limited liability company (LLC), or a corporation. LLCs and corporations offer business owners several important advantages and benefits that sole proprietorships and partnerships do not.
The most notable difference is that an LLC or corporation protects the personal assets of its owners. This may prove beneficial if a legal judgment or debt is claimed against the business. With both structures, the owner has limited liability for business obligations and debts but obtaining protection of personal assets through a corporation may involve additional formalities.
Adding LLC or Inc. to a business name conveys authority and legitimacy. Vendors and consumers often prefer doing business with incorporated companies. In most states, another business is not permitted to use a trade name or create an entity that carries the same name. This provides legal, marketing, and branding benefits that far exceed the time and effort involved in incorporating.
An LLC or corporation may continue its existence even if management or ownership changes hands. A sole proprietorship or partnership ends if the owner leaves the business or dies. The tax rate for an LLC is the same as for a sole proprietorship. Profits and losses usually pass through the LLC and are reported on the owner’s personal income tax return but an LLC may opt to be taxed as a corporation. When a corporation is established, its owner is taxed at both the individual and corporate levels. By selecting Subchapter S tax status, the owner avoids double taxation of corporate dividends and profits.
Before income is allocated to owners, LLCs and corporations are allowed to deduct standard business expenses including salaries. A corporation and an LLC are considered separate legal entities and as such, they enjoy these and other benefits and protections. By forming an LLC or incorporating, the entrepreneur can conduct business without worrying that a business liability will cause the car, home, or personal savings to be lost.
When business owners want to safeguard their personal assets, they incorporate or form LLCs. By selecting the correct structure for a skin care business, its owner maximizes operational and financial success of the operation. A consultant, accountant, and tax attorney can help an entrepreneur consider the available options and make the best decision.