Equity Accounts

 

 

 

Equity is the value of the company which is calculated by subtracting the Liabilities from the Assets. Owners Equity if the value of the owners share of ownership. So for a single owner Owners Equity is the value of the company. For a partnership or other structure the Owners Equity will vary depending on this ownership share of the business.

 

BUSINESS TYPES -

Sole Proprietorship: This is a single owner business which is not incorporated or otherwise organized under another more formal business type. Sole Proprietorships are the most numerous form of business organization in the United States. The main advantages are that this type of business is very easy to set up, requires no formal documentation and can be started simply by printing up a business card and filling a DBA. There are also tax advantages as the business is then filed under the owners personal return and taxed at personal rather than corporate tax rates. The principal disadvantage is that the owner is totally liable for the business and any business debt or in a suit any awards that a plaintiff may be awarded. For a trucker this means that you are personally liable for any debts the business incurs.

 

Limited Liability Company (LLC) - This is a similar form of business in that it is fairly easy to set up and requires only minimal organizational structure. An LLC is normally formed by paying a company who specialized in setting up businesses. For a small fee they will prepare the necessary documents and file them for you. LLC's are governed by the laws of the state in which they are formed which is generally the state in which the organizer lives. They can have one or more members. The unlimited liability that falls to the owner in a sole proprietorship is avoided by this type of structure. It offers you the liability protection of a corporation, but offers the advantages of being a 'Pass Through' entity for tax purposes. This means, simply that the revenue or loss passes directly to the owner and is filed with his/her personal taxes.

 

S-Corp - This is a formal corporation and as such is more complicated to form and to run. There are more rules about reporting, tracking and accounting practices than the LLC. The S-Corp does offer the advantage of offering an election to be treated as a pass through entity, but there are some restrictions on this ability. Generally the LLC or the S-Corp are the best structures for a small to medium sized trucking company.

 

Corporation - This is in essence an organization where the corporation, for tax and liability considerations is considered to be a 'person'. that is the corporation is taxed just like an individual would be, although at a reduced rate, on it's income and profits. I am not familiar with all the pros and cons of a more formal corporate structure but I would advise discussing this in depth with your accountant before deciding to form a C Corporation to be sure you understand all the requirements and ramifications.