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Why You Should Consider a Pass-Through Entity For Your Company

There are many ways to potentially organize a business, from partnerships to corporations to LLCs and more. However, certain kinds of companies are treated differently from others, and they are known as “pass-through” entities. Depending on your business’ needs, a pass-through entity could be exactly what you need to protect your business’ bottom line.

A pass-through entity refers to any business organization where the income “passes through” to the owner or owners of the company, rather than being held separately by the company itself. This means the company’s income is subject only to the personal income tax that someone would need to pay as if it were income made from a salaried job.  It is not impacted by a corporate income tax or capital gains tax that might eat into the company’s profits. Depending on your circumstances, this can potentially save you a great deal of money when it comes time to pay your taxes.

There are two primary kinds of pass-through entities: limited liability companies (LLCs) and S-Corporations (S-Corps). LLCs are unincorporated entities that protect their owners from liability, but which are not considered legally distinct from their ownership. S-Corps, on the other hand, are a special kind of corporation that fits certain criteria, including restricting who can have an ownership stake in the S-Corp and what kind of stock they are able to issue.

While both LLCs and S-Corps benefit from being pass-through entities, they are not necessarily appropriate for every business. The legal requirements and restrictions placed on them mean they may not even be viable for your business, depending on how your company operates and how you envision its future growth. At the end of the day, you need to consult with an attorney to ensure that your business structure is best suited to your business’ needs.

If you are interested in starting an LLC or S-Corp, or are looking into reorganizing your business, you may contact the business law attorneys at Hunziker, Jones and Sweeney. The Law Offices of Hunziker, Jones & Sweeney handle these matters for New Jersey business owners routinely, whether for a small start-up, a mid-sized company, or a large corporation. If the matter concerns the drafting of a simple operating agreement, or instead involves a more complex transaction involving multiple parties or facets, the firm can assist you. Contact the firm for a consultation at (973) 256-0456 or fill out our contact form for a consultation.

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