Types of Business Structure in Missouri

At the Piatchek Law Firm, our attorneys assist clients every day with a host of legal issues that come up during the entire life cycle of a business, from before the day you open until the day you sell your business or close your doors. These issues can include starting a business, the ongoing operation of a business, business deals and transactions, buying or selling a business, and of course, business litigation.

Getting Started

It all begins when you start a new business. Whenever you are starting a business, whether you are starting your business from scratch or buying an already existing business, it is helpful to have the guidance of an experienced attorney when selecting the type of business entity you will use. Under Missouri law, you can presently select from the following:

• Sole Proprietorship
• Partnership
• Limited Partnership (LP)
• Limited Liability Partnership (LLP)
• Limited Liability Company (LLC)
• Corporation (Inc.)
• Professional Corporations (P.C.)
• Close Corporations
• Non-Profit Corporations
• Subchapter S Corporations (S Corp) (an IRS elected entity, not governed by Missouri law)

Selecting a Business Entity

Each business entity has a set of unique qualities that make it special and different from other forms of organization. Our attorneys can discuss their similarities and differences with you and make recommendations based on your situation. Although your choice of business entity depends upon many factors, most decisions are based on one or more of the following three concerns: liability, taxes, and funding.

Liability of Business Entities

Liability refers to the extent to which an owner is responsible for the debts and charges against their business organization. If an owner has “personal liability,” he or she is fully responsible. Thus, creditors may reach all personal funds of the owner even if the funds are not invested in or part of the business. If an owner has “limited liability,” his or her responsibility is limited to the funds he or she invested in the organization. To select the appropriate business entity for your needs, conduct an evaluation of the risks and possible liabilities your business may incur during its operation. Both corporations and LLCs can provide limited liability to owners, whereas proprietorship and partnerships do not.

Tax Considerations

All income of a sole proprietorship is taxed on the sole proprietor’s own personal income tax return at the appropriate individual tax rates.

A partnership must prepare an income tax return, but the partnership pays no income taxes itself. The partnership income tax return acts as a conduit of income to the individual partners. The partnership apportions its income (or loss) among the partners and limited partners. Each partner or limited partner then includes his or her portion of the income (or loss) on his or her personal income tax return.

If a limited liability company complies with technical and complex income tax rules, the income earned by the limited liability company is taxed as the income from a partnership. However, an LLC may be taxed as an “s-corporation,” which is a favorable option for many LLCs.

Since a corporation is considered a separate person, the corporation prepares its own income tax return and pays income tax on its income. Any distribution of income as dividends to the stockholders is also taxed on a stockholder’s individual personal income tax return. The income tax rate for the corporation may be very different from the individual tax rate. A subchapter s-corporation is treated similarly for income tax purposes. The income taxation of a non-profit corporation is separate and very complicated.

Funding of Business Entities

When obtaining funds from third parties, a sole proprietorship is generally limited to borrowing money (typically from a bank), and the proprietor must borrow it under his or her own credit and personally guarantee any such loan.