Business Structure

Hey you. Good morning, it's Thursday at 10 am, and you know what time it is – it's Coffee Chats with Candice. Grab your cup of coffee or beverage of your choice, no judgment here, and that includes your businesses, and let's chat about Business Structure.

For those of you who don't know me, my name is Candice Montgomery. I am the founder of “Beginner's Guide to Budgeting” and “Monetize your Dream” to master business basics. I help new and aspiring women entrepreneurs master business basics so that they can achieve personal and financial freedom. If you're new to me, I own three businesses. The first one, my husband, and I started in 1996 and is now in its 27th year. We've paid off over $450,000 in seven years. And since 2022, we have been completely debt-free in our personal and business lives. I'm passionate about business and budgeting and sharing that with you.

All right, so Business Structure. There are various business structures such as Sole Proprietorships, Limited Liability Companies, LLCs, Partnerships, Corporations, and more. 

So, a Sole Proprietorship, which is how we started when we started our HVAC business all those years ago. We started as a sole proprietor in my name, because we were going to do Hubs certification, which is women-owned businesses are considered a minority-owned business. We were going to do that, and then it would be able to allow us to bid on different projects and stuff like that, but we didn't end up doing it, so we just stayed like that for a long time.

Anyway, a Sole Proprietorship is the simplest and most common form of a business structure. It has a single owner who is personally responsible for the business debts and legal liabilities. Profits are reported on the owner's tax return, and the business is not taxed separately. It's all run together under your 1040 tax return, it's not separated.

Partnerships involve two or more individuals or entities who share the business's profits and losses, so partners can have different roles in the contributions to the business. There are two main types, there's a general partnership with shared liability. Each partner has the share of equal liability of the business and the profits and losses, or there's a limited partnership where some partners have limited liability.

A Limited Liability Company, an LLC, which is what our other three companies are. I have two LLCs for “Candice Montgomery Online,” for “GottaGettaTan Spray Tan Studio,” and then we have, which I don't normally mention, a fourth business “Apocalypse Realty,” and that is an LLC. I'll tell you a little bit more about it as soon as I give you some more details. So, an LLC combines the liability protection of a corporation with the past through the taxation of a partnership. I know that's very confusing, that's why you have to contact an accountant, which is not me.

Owners are known as members, and they're not personally liable for the company's debts. Members of my two LLCs, I'm a single member LLC for both “Candice Montgomery Online” and also for “GottaGettaTan,” and my husband is a single member for “Apocalypse Realty” which is our future investment, a real estate investment company that we're using. So that's something in the future.

LLCs offer flexibility in management and fewer compliance requirements than corporations. So, a corporation is a separate legal entity from its owners, which are called shareholders. Shareholders have limited liability, meaning their assets are generally protected from the company's debts and liabilities. So, you know, your personal assets; your home, your car, etc., and corporations have a more complex structure with a board of directors, officers and shareholders.

There are two main types: There's a C Corp and an S Corp, Which are different in tax treatment. An S Corp, which is what our HVAC company is. We went from a sole proprietorship to an S Corp. An S Corp is a special type of corporation that enjoys pass-through taxation similar to an LLC. It provides limited liability for shareholders, S Corps has restrictions on the number and type of shareholders making them suitable for small businesses, and C Corporations are the most common type of corporation, it has no restrictions on the number or type of shareholders and can be ideal for publicly traded companies. C Corps is subject to double taxation, meaning that the corporation and the shareholders are taxed on profits.

There are a lot of different business structures and I've only mentioned a few of the most common ones. For small business, the most popular option are Sole Proprietorship which is also known as a “DBA” which is “Doing Business As.”  So, a sole proprietorship, for example, when we first started, Airwaves was “Airwaves Air-Conditioning and Heating,” it was “Candice Montgomery DBA Airwaves Air Conditioning Heating,” which is “Doing Business As” so it was classified that way. The legal name would be, my name and the company name, which is most common for a lot of state home businesses or small businesses when they're just getting started.

A lot of businesses don't have aspirations to be huge conglomerate businesses, so that's the most common. Again, consult your accountant. But once you hit a certain threshold with your income, it might be suggested that you change your structure to an LLC or change it to an S Corp, so it just varies on your business, and what's best for you and your business and your taxes.

It's important to speak with an accountant and an attorney to discuss your options for structuring your business for tax and legal purposes. I am not either a tax CPA or a tax attorney. I'm just me, so consult with them to give you the best information for your situation.

And that's all I have for today. I don't have a whole lot, I just had a little bit of detail on structure today. As always, if you found this video valuable to you, please like, share, and comment so that my video is seen by more eyes and my message gets out to the universe.

When it comes to starting a small business, I've been where you are, I know how you feel. It can be a lonely journey, but it doesn't have to be. When we started, it was before Google and Facebook existed. I know it's confusing, but I can help. If you or someone you know needs help, send them my way. I do one-on-one coaching and soon we'll be launching a new group program. And I can't wait to share more details with you in the coming weeks. Thank you so much for taking time out of your day to be here with me or catching the replay. I hope you have a fabulous Thursday and a fabulous weekend. See you next week, Same time, same place for Coffee Chats with Candice.