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Test Your Structural Integrity

Why your business structure could be eating away at your company's bottom line

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This story appears in the August 2009 issue of Entrepreneur. Subscribe »

The structure of your --whether it's a , an LLC, or an S or C corporation--can directly affect your business's financial health. You've probably already weighed legal and other matters when settling on a , but tax considerations can be just as essential--and can dip into your bottom line if you're not careful. Just ask Beth Shaw, president and founder of YogaFit Training Systems Worldwide Inc. The midsize company, with five million in sales, started out as an , but "I wanted more levels of protection, so we switched to a C corp," Shaw says. Problem was, when came around, that so-called protection translated into a 25 percent jump in taxes. "Now we're planning to go back to being an S corp."

What's that business structure costing you?

If your business is a sole proprietorship, it's probably not costing you too much. If you own a partnership or an S corp, on the other hand, it may be time to rethink your business structure. -J.L.

Average tax rate for small businesses: 19.8%

Sole proprietorships: 13.3%

Partnerships: 23.6%

S corps: 26.9%

C corps: 17.5%*


*not directly comparable, as salaries and dividends are also taxed

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