|
The first place you want to begin when setting up your business is in deciding how you want to have it organized.
You have a few options available to you; it is just a matter of which one fits your needs best.
A Corporation is a legal entity that can conduct business in its own name. Generally, the shareholders of the corporation provide the start-up money or "capital", and officers and directors supervise the business. When most people think of a corporation, they imagine a boardroom of gentleman in expensive suits, however, in most states, one person can act as the shareholder, director and officer of his/her corporation.
The types of corporations available to you fall under three categories: C Corp, S Corp, and LLC (Limited Liability Company). There are options within these categories, but first let's look at why you want to incorporate yourself in the first place.
The benefits of incorporation
The first benefit of incorporation is that the existence of your corporation continues regardless of whether ownership or management changes; even after the death of its founders. This means that you have the ability to sell the business, hire managers, or even leave your business to a loved one for after you've gone. Stock may even be transferred so that owners can distribute their interest in the corporation without the corporation dissolving. It also leaves you free to open alternative businesses while still retaining ownership status; a plus if you want to diversify your revenue streams or open a business in a different industry.
Another benefit of incorporation is that under most circumstances, only the corporation is liable for its debts. The corporation protects the owner(s) of a business against personal liability. This means that the company's money stays the company's money, which protects your own personal property. Even if you have investors on your board, these shareholders are generally liable up to the amount of their investment. In other words, because a corporation is a separate legal entity with its own identity separate and apart from its shareholders (owners), even if the business fails you is still protected - your money stays your money no matter what.
This separation gives you and possibly other shareholders a few advantages. Owners of corporations can sell stock for the purposes of raising capital. This approach to raising capital is often more attractive to investors than other forms of equity. In other words, by incorporating, you have an additional means of increasing cash flow by having stock options for investors - in the world of business; cash-flow can have a serious impact on success.
Incorporation also gives you lots of tax advantages that other business entities don't have. Some of the tax options available include setting up pensions, profit sharing, dental deductions, medical expenses, child care costs and stock option plans. While this means that your corporations’ gets taxed seperately from you, the added flexibility and security this gives you overshadows the added expense. And the best part....
It's not expensive to form a corporation.
There are also a few procedures and items that go along with being incorporated. "Inc", "Co", "Incorporation", "Corporation", "Company", "Limited", or "LTD" must follow the corporate name. Also, the articles of incorporation must be filed with the secretary of state. When filing, most states require a registered agent. A registered agent is responsible for receiving any legal documents for the corporation. Also, Directors are allowed to make "honest mistakes" without being sued by the corporation or shareholders, so even bad decisions do not necessarily make you liable for losses.
Types of Corporations
To better understand your options we have included a brief description of each type of corporation that you can form, and the differences between them. Each has its pro's and cons, so make sure you read all of them so that you fully understand your options. After you have gotten a brief overview, we'll go over each in-depth and how they apply to the business you wish to start. After all, it's all part of the plan!
Comparison
The first type is the C Corp. This type of incorporation is one of the more traditional types, requiring separate filing for taxes. Filing as a C Corp is optimal when:
• owners live outside the country
• owners live in a state with a state income tax
• several individuals or other entities are involved in ownership
• Sales are greater than $60,000 per year.
S Corps are slightly different and are more appropriate for when your business is pulling in a larger income than C Corps. In general, filing as an S corporation is appropriate when:
• Your company is expecting start-up losses during the initial year(s) of operation.
• You have with no intention of going public with your company in the future.
• You do not expect to issue multiple classes of stock.
• Your company might be subject to the Alternative Minimum Tax.
• Your owners live in a state with no personal state income tax.
• Sales of products or services are expected to be less than $250,000 per year.
LLC's are the greatest departure from the more familiar S Corp and C Corp. An LLC, or Limited Liability Company, is a hybrid between a corporation and a partnership. An LLC is a separate legal entity (business structure) from its owner(s). An owner of an LLC is typically referred to as member; however an LLC may be member-managed or manager-managed. LLC status is appropriate when:
• the business is a partnership
• real estate is owned for investment purposes
• several entities own the business
• the owner is seeking complete protection from personal liability
Click here to incorporate your business.
 
|
