6633 Green Bay Road, Suite 4, Kenosha, WI 53142

Kenosha Business Formation Lawyer

Lake Geneva  LLC set up attorney

Attorney Assisting With Business Entity Selection in Racine, Pleasant Prairie and Burlington

Small business owners often put everything they have into the success of their companies. This includes not just financial investments, but significant work that includes consultation with experts, partnerships with vendors, close management of employees, and a great deal of mental and physical labor. You will want to be sure that all this energy and effort will pay off, so you should take steps to structure your business in a way that will help ensure its continued success. A knowledgeable business law attorney can help you determine the best way of doing so.

At Frozena Law LLC, we provide our clients with experienced guidance in their business efforts. We are dedicated to understanding your business and helping small business owners on their journey to success. We can work with you to select and properly maintain the appropriate entity type for your business to help protect you from personal liability and provide a foundation for your business to grow.

Choosing a Business Entity

The choice of how to structure your business is a crucial step that will affect the taxes you pay, the relationship between partners and other investors, and your liability as a business owner. Some common types of business entities include:

  • Sole proprietorship - In this type of business, there is no separation between the business assets and other assets personally owned by the business owner. This means that the owner may be personally responsible for the business's debts or liabilities.
  • Partnership - If two or more people own a business as partners, they may structure the business as a general partnership, limited partnership (LP), or limited liability partnership (LLP). In a general partnership, all the partners are typically jointly and severally liable for all debts, obligations, and liabilities. In an LP, there are two types of partners – general partners and limited partners. The general partners will have unlimited liability, while the limited partners will have limited liability, meaning they will not be personally responsible for the business's liabilities. In an LLP, all partners will have a level of limited liability, although different than the limited partners in an LP.
  • Limited liability company (LLC) - This type of structure allows an owner or owners some protection of their personal assets from the business's liabilities. It requires registration and annual filing with the state.
  • Corporation - This type of business entity is legally separate from its owners, and it must follow a variety of legal requirements, including ongoing reporting and record keeping. Ownership shares of the corporation may be sold to raise funds, and a shareholder may sell their shares at any time without disrupting the company's operations, although in some cases, such as closely-held corporations, there may be sales/transfer restrictions.

Income Taxation Considerations

Taxation is an important consideration in the entity selection process. At the most basic level, you will want to determine if you want an entity where the income is taxed at the entity level or owner level.

Sole proprietorships and partnerships are taxed at the owner level at personal income tax rates. For a sole proprietorship, business income and expenses are reported on Schedule C or C-EZ of the owner's personal tax return; for partnerships, each partner will receive a Form K-1, which reports the income, deductions, credits, and other tax-related items allocated to the partner from the partnership. The partnership as an entity prepares and files Form 1065 to determine the information that goes on the individual K-1s, and no tax is paid with the filing of a Form 1065.

Corporations are typically taxed at the entity level at corporate tax rates. There are two types of corporations for tax purposes – the C-corporation and S-corporation. A C-corporation files its own tax return, Form 1120, and tax or a refund may be due from/to the corporation on that return. In this structure, there is "double taxation," as the corporation is taxed at the corporate tax rate on its income, and shareholders (owners) pay tax on dividends and distributed profits at the shareholder's tax rate. If a shareholder is also an employee, they will also pay taxes on their compensation from the corporation.

An S-corporation, or small business corporation, files a Form 1120-S. However, it is a pass-through entity, like a partnership, and thus avoids "double taxation." There are ownership restrictions for entities wishing to elect S-corporation status. An S-corp cannot have any of the following: more than 100 shareholders, a shareholder who is not an individual (with limited exceptions), a nonresident alien as a shareholder, or more than one class of stock.

An LLC has multiple options regarding taxation. A single-member LLC (one owner) can choose to be taxed as a disregarded entity (like a sole proprietorship), as an S-corporation, or as a C-corporation. Similarly, a multiple member LLC can choose to be taxed as a partnership, S-corporation, or C-corporation. The IRS default for single-member LLCs is disregarded entity and for multiple-member LLCs is partnership. An affirmative election is required for an LLC to be taxed as an S- or C-corporation.

Maintaining Your Business Entity

Choosing and forming your business entity is just the first step. If you do not properly maintain your entity, comply with legal requirements, and implement best practices, you risk losing the protection you sought in choosing a limited liability entity. An attorney can assist in identifying and meeting your entity's ongoing legal requirements and best practices, including annual filings with the state; clearly separate finances from the owner(s); formally documenting business decisions, reimbursements, loans, and the like; and holding and documenting required meetings, among others.

Contact a Racine County Business Law Attorney

The business entity for your small business should be carefully selected to provide you with protection from liability, minimize your tax burdens, and help ensure that your company can grow in the future. Frozena Law LLC can advise you about your options, help you complete the requirements for business formation, and provide you with ongoing legal help to maintain your business entity and encourage your business's continued success. Contact us by calling 262-237-8668 to arrange a consultation. We assist with business formation in Kenosha, Bristol, Pleasant Prairie, Union Grove, Racine, Lake Geneva, Burlington, and Sturtevant.

Frozena Law LLC
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