Do you Know Your Entity Type?

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What your entity says about your business

What type of entity is your business? I am always surprised to talk to business owners and learn that they are unsure of what type of entity they formed for their business. And the ones that do know usually don’t understand how their entity type affects the classification of their daily, monthly, and yearly transactions. For instance, are you aware that a C-Corp treats owner pay as an expense but an LLC treats owner’s pay as a reduction in equity? An expense affects the Profit and Loss and equity transactions do not.

If you are a single member LLC, do you know if your business is classified as a disregarded entity or an S-Corp.  Do you even know what a “disregarded entity is”? or Why this designation is important?

If you are doing business as a sole proprietor are you aware that this entity type is not a true legal entity and it does not provide any personal liability protection?  All too often liability concerns don’t cross the minds of new business owners…”What could possibly go wrong, it’s just me working out of my home?”  You would be shocked at the amount of things that could happen.

Your choice of business entity, cannot be a haphazard decision made because you have to get your doors open.  The entity type you choose for your business has to be one of the first decisions you make.  It determines how you pay taxes, the classification of certain transactions and can protect your personal property from a law suit.

Please make sure you protect yourself by understanding your business entity type.

Copyright 2014 – Christi Rains, President Alpha Omega Consulting & Bookkeeping, LLC

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