What are the different types of business entities and which one is the best for me.

There are many different types of businesses entities to choose from when you set up your businesses. The most simple and least costly to set up is a DBA or as it is also known, a “sole proprietorship”. In this scenario, the owner, as an individual, assumes sole responsibility for the businesses. Therefore, any actions tied to the businesses are ultimately linked to the owner. This type of entity leaves the owner on the hook for anything like taxes or unpaid vendors should the businesses fail. This leaves personal property exposed for unpaid vendors, local and state tax entities or even civil judgments. To set up a DBA, all an individual has to do is go to your local town hall and pay for the application fee. The DBA will allow you to go to your local tax office and apply for a re sell certificate and go to your bank and open a businesses account.
The second type of businesses entity is the Corporation. The corporation can be divided into two different types; “C” Corporation and “S” Corporation. The major advantage of forming a corporation over a sole proprietorship is that the corporation becomes its own entity. This protects the owner or owners from individual liability. The difference between an “S” corporation and a “C” corporation is the way the taxes are structured. “C” corporation's are responsible for taxes at the corporate and share holder level. Therefore, if you are a working owner of a corporation, your businesses will have to pay taxes on profits and as an individual you will have to pay taxes on your own salary as well. An “S” Corporation changes the tax structure so that the owner or owners are all responsible as individuals. It is a little more challenging to set up a corporation. A local attorney can easily set it up for you but will typically charge you attorneys fees plus the state filing fees, etc. Many states also allow individuals to go on line and fill out the applications and pay the filing fees. In Texas, the application fees are around $300.
The third type of businesses entity is the General Partnership. In order to form a general partnership two or more individuals or businesses entities must come together under a common agreement that allows them to own and operate a businesses . The structure is very similar to the sole proprietorship in that the individual partners are responsible for the companies debts ,taxes, etc. Again, this leaves the owners exposed to many sorts of problems that can arise from the operation of a business.
The fourth type of businesses entity is the Limited Liability Partnership. This operates pretty much the same as a general partnership, however, the company becomes an individual entity itself, and thus limits the partners from personal liability. In addition, each individual is responsible for his or her own federal taxes. Not every state will allow you to set up an LLP. Contact your local Secretary of State for further information.
The fifth type of businesses structure is the Limited Liability Company. This operates very similar to to a corporation and a partnership. Individuals or partners can own shares in the businesses while limiting their personal liability based on “who owns what”. Furthermore, each individual is responsible for their own taxes.
In order to determine which businesses entity works best for you consult with your CPA. If you are setting up a small business and basically just want to limit your own personal exposure, I would recommend the Limited Liability Company. The tax advantages of an LLC is that it pays taxes only on the individual level. Whereas, a corporation will have to pay taxes at the corporate level and then on an individual level as well. Single member Limited Liability Companies are viewed by the IRS as a sole proprietorship and therefore, the owner, only has to file IRS form 1040 schedule C. A multi member Limited Liability Company will also be seen as a partnership and its members should file United States Partnership tax form 1065. Lastly, the main purpose of forming an LLC is to limit your personal credit exposure. The companies credit is separate from the individuals credit, therefore one does not affect the other. The good is thing is that if the business should fail, creditors can not come after you for any credit that was taken out in the name of the company.