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How legal entities affect tax
- When you form a business, you have to choose a legal structure. Will you be an owner-operator or sole proprietor, a partnership, a limited liability company, or a corporation? There's lots of options, and even more tricky, they vary by country. Make your decision based on these three factors. First, legal issues. Will you as the owner be legally responsible or do you want a hard line between you and the business for legal responsibility? Second, ownership and funding. Generally, if you want to have multiple owners or shareholders, you should be registered as a corporation. The same applies to startups who are looking to raise money through fundraising, as corporations are much more flexible for this purpose. Finally, choose a legal structure based on tax issues. Are you going to benefit from being a pass-through company where you pay tax once, or a corporation where there's double tax? And what tax rates are you likely to be paying in each? The hard part is that there are no future…
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