In Iowa, the sole owner of a business generally has the following choices for type of business entity:
- Sole Proprietorship
- S Corporation
- C Corporation
- Single-Member Limited Liability Company
Some of the factors you may want to consider include:
- Do you need limited liability protection?
- How will profits be taxed?
- Can you take advantage of certain fringe benefits?
- Will you be seeking additional investors?
A sole proprietorship is the easiest to set up. No formal legal documentation is required. But a sole proprietorship does not provide you with limited liability protection. The S Corporation, C Corporation and LLC provide limited liability protection.
Business profits with the S corporation, single-member LLC, and sole proprietorship are taxed at the individual level and you avoid double taxation. The C Corporation can allow you to take advantage of certain fringe benefits but it also requires appropriate tax planning to reduce your corporate tax liability.
A C corporation may be necessary if you want to attract additional investors, especially venture capital.
Keep in mind there is nothing to prevent you from changing business entities as your business grows. Many businesses start out as sole proprietorships and then incorporate later.