New Business Startup

It’s Now Time to take the steps to make your business dream into a reality.

Starting a new business can be exciting—and stressful. Don’t let the process overwhelm you. We can help with:

  • Federal and state identification numbers
  • Accounting Software
  • Articles of organization and state filings
  • Sales Tax requirements

Running your own business is tough work but the rewards can be great; after all, small business ownership has made more people wealthy than any other single factor— including stocks, bonds or even real estate. Despite the risks, owning your own business is one of the best ways to gain financial independence and personal freedom. If you are looking to incorporate your business, you should first decide what type of business structure you want for your company.

Types of business entities include:

  • Sole Proprietorship
  • LLC Limited Liability Company
  • Partnership
  • C Corporation
  • S Corporation

Each type of business has its own strengths, weaknesses, and tax implications. When starting your business, choose the business structure that best suits your needs, priorities, goals, and resources, as well as your long-term vision of where you want your business to be. Consider the following factors:

Liability

All businesses are susceptible to liabilities, but personal liability varies according to the type of business. For example, if you own a sole proprietorship, you may be personally liable for all debts and claims against the business. To protect your personal assets, consider investing in liability coverage, or incorporating the business as a separate entity.

Taxation

Some business structures offer ways to minimize taxation, so be sure to consider your financial plans and resources.

Record Keeping

Keeping records of your business can help monitor company progress, expenses, and income. However, extensive record keeping for large corporations can be costly and time consuming, so keep this in mind when choosing a business structure.

Business Structure

When starting a business, you should consider the appropriate business structure. Structures like sole proprietorships, partnerships, limited liability companies, or incorporating as a C-Corporation or S-Corporation each have strengths and weaknesses. You should choose the business structure that best suits your needs, goals, and resources. Not every structure will be right for you, so to help make your decision, here are some basic facts about five major types of business structure:

Sole Proprietorship

Most small businesses fall under this category, which is the easiest to set up due to its simple and informal structure. One person owns all the assets and profits of the business. The owner reports losses and profits on his or her personal income tax return.

Under a sole proprietorship, the business is not a separate, distinguishable entity from the owner. The owner will be liable for debts incurred by the business.

LLC – Limited Liability Company

An LLC is something of a hybrid structure. It provides limited liability to its owners, like a corporation, but allows members to determine how they are taxed. LLCs are not seen as a separate business entity. Members are – in most instances – allowed to determine their business entity classification. They choose to be treated as either a single member LLC, partners in LLC, or file as a corporation.

There are several advantages to LLCs. Beginning an LLC is generally less costly than an S or C-Corp, and the registration paperwork is less burdensome. LCCs have fewer restrictions when it comes to profit sharing amongst members. Members decide amongst themselves through an operating agreement how to divvy profits and losses.

LLCs only exist for a limited period. If a member leaves the LLC, the LLC dissolves. This can be prevented by the LLC operating agreement, or the remaining founders can simply reform the LLC. Additionally, all members of an LLC are considered self-employed for purposes of taxation. They must contribute independently towards items like Medicare and Social Security.

Partnership

Partnerships are similar to sole proprietorships, except there are at least two owners. Like a sole proprietorship, the business and its owners are indistinguishable in eyes of the law. Partners can split profits and liabilities according to a Partnership Agreement. Partnerships don’t pay taxes. Instead, the individual partners report their share of profits or losses from the partnership.

There are different types of partnership agreements:

A general partnership assumes equal shares between the partners unless the Partnership Agreement states otherwise.

A limited partnership limits both the owners’ liability and the owners’ ability to make management decisions.

A joint venture is like a general partnership but lasts for a limited period of time or single project.

C-Corporation

A C-Corporation is a unique entity under the law: it is a distinct entity and therefore can be taxed, sued, and enter contracted agreements. Shareholders (i.e., owners) have limited liability for the debts of the corporation, but officers can be held responsible for their own actions. While corporations receive special rights (i.e., they can raise funding through stocks), they are expensive to set up, heavily regulated, and can pay more taxes. C-Corporations generally require the assistance of a qualified attorney.

S-Corporation

The business structure of an S-Corporation is very similar to that of C-Corporations. Both are considered distinct legal entities from their owners (shareholders), and both adhere to the same corporate formalities. There are two differences: first S-Corporations are taxed in a different manner; second, S-Corporations cap the number of potential shareholders to 100, whereas C-Corporations allow for unlimited shareholders. For more information, please visit our page on How an S-Corporation is Taxed, as well as our page on the differences between S-Corporations and C-Corporations.

No matter what sort of business you run, it’s a great idea to “make it legal.” Incorporating as an S-Corp or forming your company as an LLC both have distinct advantages for you and your business. For a small amount of money and just a few minutes of your time, you’ll be protecting your personal assets in addition to making your business run more smoothly and professionally.

But how do you know which business formation to choose? Although some companies choose to become C-Corps, partnerships, or non-profits, for most, it comes down to LLC vs. S-Corp.

Why to Start an LLC

Yearly, more people start LLCs than S-Corps. When considering the LLC vs. S-Corp question, keep in mind that limited liability companies are a bit easier to start and to run, and generally, they take less upkeep to remain compliant. Some distinct advantages of starting an LLC are:

LLCs provide liability protection for their members. This means your personal assets will be protected against debts, losses, and any court rulings against your business.

LLCs are “pass-through entities.” This means that dealing with business taxes is much easier, though it also means you’ll be paying those taxes on your personal 1040 tax return. That said, you can select to be taxed as a corporation. This brings us to our next point:

LLCs provide great flexibility. Corporate management structures are far more rigid than those of an LLC. In fact, with an LLC Operating Agreement, you can essentially create the management structure of your choosing.

LLCs have far less paperwork up front and in the long-term. This makes them easier to run and to keep compliant with state and local laws.

Why to Start an S-Corp

The largest and most profitable companies in America are generally corporations. Keep in mind there are two different kinds of for-profit corporations—S-Corps and C-Corps—and you can read about the differences here.

If you’re deciding on an LLC vs. a S-Corp, you should learn some of the major advantages of an S-Corp. Here are a few:

S-Corps provide liability protection for their shareholders. Only the money invested in the S Corporation by its shareholders is at risk, barring extreme circumstances. Personal assets are usually protected, as they are with LLCs.

S-Corps are not taxed, but shareholders are. In other words, if you have four partners and your S-Corp made $40,000 this past year, you’ll each claim $10,000 in taxable income from your S-Corp. While your S-Corp will need to file an IRS 1120 S form, S-Corps are “pass-through” entities, much like LLCs are, and are not taxed, in and of themselves.

S-Corps appear more legitimate. Investors often view the corporate structure as more permanent than that of an LLC.

S-Corps have a more rigid management structure. All S-Corps have hard and fast rules for how to remain compliant, who can vote on corporate practices, etc. These rules give shareholders and owners a real, clear path to follow, and that path is familiar to investors.

S-Corps require more paperwork. This may seem like a disadvantage, but the additional paperwork actually gives you a concrete record of your decisions and proof that you acted in the best interest of your company. While this can feel tedious, having these documents can be very valuable for tax and liability purposes.

S-Corps can sell stock. To raise capital, corporations often sell stocks. LLCs can only sell interests in their company.

LLC vs. S-Corp: Conclusion

Both LLCs and S-Corps will give you some measure of personal liability and overall legitimacy. They’re both good options if you’re looking to upgrade from a sole proprietorship or a partnership, or if you’re just starting your business.

But, if you’re planning on selling stocks, or you want the most possible protection, and you’re planning on looking for investors, think about starting an S-Corp.

Conversely, if you don’t want to sell stocks, want less paperwork, but want the most flexibility, consider forming an LLC.

OUR BUSINESS FORMATION PROCESS

  • Business Formation Process
  • Federal Registration
  • State Registration
  • Creation of Articles of Incorporation
  • Corporation Bylaws
  • Election by a Small Business Corporation
  • Share Distribution Document
  • Board of Directors Meeting Minutes
  • Register Agent Services
  • Corporate Renewals
  • We can help you through this entire process.