You are considering forming an Iowa small business. What type of business structure should you choose? In Iowa, your choices generally are a sole proprietorship, S corporation, C corporation, or a limited liability company.

Some of the factors to consider in choosing a business structure are:

1) Personal liability protection;
2) How profits are taxed;
3) Ability to take advantage of fringe benefits;
4) Ease in raising capital.

A sole proprietorship is the easiest to set up (you generally do not need to take legal action) but you have unlimited personal liability. In today’s sue happy society it is probably a good idea to consider a form of business that provides you with personal liability protection like a corporation or LLC.

Traditionally, most small business owners selected the S corporation as their form of business. The S corporation is often a good choice because it provides you the limited liability you need but you avoid double taxation because all business profits are taxed to you as an individual. The limited liability company has become popular over the past decade and also provides you limited liability and avoidance of double taxation.

The C corporation has traditionally been used for larger businesses but accountants will often recommend it because the owners can take advantage of certain fringe benefits. Also if you need outside capital, a C corporation may make it easier to attract investors.

So which business structure should you choose? Before choosing a business structure it is wise to talk with an accountant. The accountant can review your financial situation with you and advise you on the best strategy for your business. In my view the choice of a business structure usually boils down to tax treatment. So talk to your accountant first and then go to the business lawyer to set up the business entity.

Click here for more information on forming your Iowa business.