How to Set up a Business Entity to Obtain Corporate Credit

By Susan Carter

As you begin a new business venture, you have probably already decided what kind of business you are going to run, and even what you are going to name it, but you still have one more important issue to decide. You need to know what type of business structure will be the easiest and most beneficial for your company. Have you heard of the terms LLC, C-Corp, and S-Corp? If your answer is yes, but you dont really understand the difference, then read on.

There are many business structures you can use when you are setting up a new company. They each come with different benefits as well as liabilities. Here's a breakdown of the most common:

Sole Proprietorship. This is best known as the one-man show where the individual person running the company keeps the profits and absorbs the losses. Unfortunately, the person also carries all the responsibility and liability. This is definitely the least desirable due to the huge personal risk thats involved for the individual. Partnership. In this structure, at least two or more people are the owners of the business. They put similar amounts of money and/or time into the business and they choose who is responsible for running it. They also incur the credit debt for the business and can be held personally liable - if sued. Limited Partnership. In a limited partnership there are, again, at least two partners involved, but they dont always have the same level of involvement, responsibility, or authority. One (or more) of the partners make the decisions and the others remain silent partners. The amount of monetary contribution per partner also differs. Limited Liability Company (LLC). This generally proves to be the most flexible business structure and definitely one of the easiest to set up in the beginning. Its a very good entity for small or large businesses because it helps provide personal asset protection. It also offers a format that makes it easy to distribute profits and losses among the owners. With this type of entity structure, the liabilities of the company are not taken from the personal assets of the individuals, but rather taken from the business assets of the LLC. C-Corporation. There are two ways to file your business as a corporation " either as a C-Corporation or as an S-Corporation. The C-Corp is the most stringent and structured form. The business profits are taxed twice " once at the corporate level and once at the stockholder level. With this type, you can have unlimited stockholders to own the company. The C-Corp is taxed as a separate entity, unlike the other form know as an S-Corp. S-Corp. This too is corporation. However, it has a limit in the number stockholders that can own the business " a max of 75. A plus for this business type is that the profits arent double taxed like they are in the C-Corp structure. This is known as a flow through entity " which means the profits or losses flow through to the personal, individual tax returns.

Financial institutions generally view the LLC and corporation structures as higher rated business entities. By choosing one of these structures for your business, you are presenting a more professional image to the financial institutions and they are more likely to offer business credit and trade credit to the business.

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Learn more about how to set up your business structure correctly and learn the advantages and disadvantages of each type of entity. Learn how to present your company as an established business so that you can get business lines of credit from lending institutions and obtain vendor credit without risking your personal FICO scores.