Incorporation Options

Incorporation Options

Incorporation Options. No matter if you have already purchased a business or planning to start a brand new company, it is important for you to decide on the type of the business structure you would like to set up before you move forward with operations. There are several business types (or entities) to select from depending on the type and the scale of your company. Each of these options has unique advantages and disadvantages, so it is compulsory for you to get a good idea (probably with the assistance of your attorney). It is important that you consult a lawyer before you make the final decision on your incorporation options.

Incorporation Options

C-corporation

The C-Corporation is mostly known as the standard corporation. Technically, C-corporations are structured to be operated as separate legal entities. These businesses are owned by the  businesses shareholders. You need to fill out the relevant documents related to forming a C-corporation and pay the respective charges decided by the state authorities. Once the company is incorporated under C-corporation structure, each shareholder’s liability is limited to the amount invested in the particular company.

Which businesses should focus on C-corporation?

C-corporations are best if you;

  • Plan in venture capital as a potential financial source
  • Plant to implement flexible profit sharing strategies and retain company earnings for the growth of the business
  • Want to implement flexible strategies in deciding salaries for staff while minimizing expenses like Social security and medical taxes
  • Plan to have flexibility in providing substantial health, medical and other fringe benefits to the employers
  • Want pre-arrangements to sell the business pretty easily
  • Plant to offer stock options (especially for employees)
  • Have plans in owning real estate

S-Corporation

This is a corporation structure with special tax statuses that comply with IRS. Requirements are much similar to those for C corporations. However, S-corporation’s taxation procedure has the ability to avoid double-taxation which possibly may occur with C-Corporations. No tax should be paid at the corporate level. Profits and losses are directly sent to shareholders, and the taxes are calculated based on their returns.

Which businesses should focus on S-Corporation?

S-corporations are best if you;

  • Intend to enjoy the benefits of C-Corporation businesses, while experiencing taxation advantages
  • Want to implement flexible strategies in deciding salaries for staff while minimizing expenses like Social security and medical taxes
  • Hope to face minimal risk of IRS audit exposure

LLC

This is a structure that has the advantages of limited liability protection of C-corporations and tamed taxation advantages. Technically, LLC income is not taxed at the entry level. But, if there are multiple owners, LLCs should complete a partnership return. The loss or the income is passed through for individual tax returns and paid at the individual level too. There are fewer obligations and formalities compared to C-corporations concerning registration.

Which businesses should focus on S-Corporation?

LLC are best if you;

  • Anticipate loses for at least two years and willing to bear the loss by you and your partners
  • Expect a flexible accounting method
  • Expect to own real estate
  • Expect highly flexible management process
  • Want to lower ongoing formalities like annual meetings for directors and shareholders, extensive documentation and precise records of all the activities
  • Expect to enjoy flexible profit sharing process

Apart from the above-mentioned strategies, some businesses are operated as sole proprietorships. This is not the best type of strategy to implement for a growing business as it doesn’t exist as a separate legal entity from the owner. The loss or profit is bearable by the owner himself no matter what the impact is. Typically, this is a business owned by a single person who is accountable for all the activities including taxes and loses.

Always consult an attorney to determine which Incorporation option that is best for you.


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