Before starting a new business, there are numerous decisions to make. One of the first decisions is deciding the legal form in which your business will operate. Each type of business has advantages and disadvantages, and you should carefully consider how your personal and business plans will work in relation to the entity you choose.
Sure, it´s all confusing at first and you may need to do some research and read about the different options you can find. Once you have the basic information, the next step is to contact an expert tax professional, this can be a Certified Public Accountant (CPA) or a Registered Agent (EA) with the Internal Revenue Service, these professionals can clarify any questions you may have, in order to make a decision about what type of legal entity you can register for your business.
Independent owners are the easiest and least expensive business entities to establish. They can be operated with few formalities. However, one drawback is that they do not offer protection for your personal assets in the event of a lawsuit. Additionally, many of the tax benefits or credits that are available to corporations are not available to independent owners.
Informal partnerships are similar to independent owners, but allow more than one person to own and operate the business.
Limited Liability Companies or LLCs are relatively new entities compared to the other types of business entities. Generally, this type of entity does not pay corporate taxes. In addition, the other advantage is that it protects the personal assets of the partners from any claim against the corporation by creditors.
S corporations offer liability protection without paying corporate taxes. Shareholders pay income taxes on their salaries and the net income passed to them from the corporation. In addition, since there are limits on the number of shareholders, growth potential and access to capital may be limited.
C corporations are subject to double taxation. Taxes are paid at the corporate level, and any profit distributed as dividends to shareholders, shareholders are taxed. However, if the profits are reinvested in the corporation, the tax is typically lower than with an S corporation. One advantage of this type of business entity is that shareholders who are also employees qualify for fringe benefits favored by corporate taxes, such as health insurance and group term life.
Once you decide what type of business entity to use for your business. I´m sure you´ll have a lot of questions to ask, and I´m equally sure I can help you make the right decisions and implement them efficiently, so you can focus on the success of your new business. When you´re ready, give us a call and we´ll schedule an appointment.
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