Choosing a business formation type for your new business is a complicated proposition, with taxation concerns being one of the most crucial parts. Here are business entity categories for the state of Oregon and their corresponding modes of taxation.
General Partnerships And Business Corporations
As its name implies, a general partnership is composed of two or more owners. A legalized partnership agreement stipulates the responsibilities of each partner, while each partner pays their share of tax on their respective personal tax returns. A business corporation has one or more shareholders whose liability to the business extends only to the amount that they invested in the company. While the shareholders pay taxes on their dividends, the corporation pays taxes on the income it makes.
Sole Proprietorships And Limited Liability Companies
If you are the sole owner of your enterprise, you have the option of either forming a limited liability company (LLC) or becoming a sole proprietor. While each of these business types has only one owner, the exposure to liabilities and the tax implications are much different. As a sole proprietor, you carry personal liability for your business. If you form an LLC, you have limited liability to your business. Sole proprietors report their taxes through their individual tax returns, while an owner of an LLC can choose a corporation or partnership tax approach.
Technically speaking, there are no owners of a nonprofit corporation. The members of the nonprofit elect a board of directors, who create policies for and manage the activities of the charitable concern. Dissolving nonprofits must pass on any existing assets to another nonprofit. If the nonprofit is not tax exempt, it must pay taxes on any income it makes.
Your potential tax liability is just one factor to consider when deciding on the most advantageous business formation for your situation. You will want to find the best balance of factors including management structure, liability and reporting requirements in addition to a favorable taxation framework.