Incorporate Llc
Incorporating—-LLC…Inc…what do those mean and what do I need to do?
So you’ve started your business but you want to know whether you need to be an LLC, Inc. LLP, etc. You also want to know what those things mean.
When starting your business, you want to decide on what type of legal form you would like your business to be. The most common types are Sole Proprietorship, C Corporations, S corporations, general partnerships, limited partnerships, and limited liability corporations.
Allow us to explain below:
Sole Proprietorship: Generally speaking, a sole proprietorship is the easiest and most cost effective way to form your business.
Good Things: It’s cheap and easy to start; you can claim some business expenses on your personal tax return (fax machine, computers, etc.).
Bad things: You may be held personally liable for lawsuits filed against your business. Just an example, your business is sued; you lose your house and cars in the lawsuit.
How to form one: typically speaking, you will need to file a Fictitious business name otherwise known as a DBA or Doing Business As, etc. If you are doing business as anything other than your legal name, i.e. John Smith, you will need to form one of these by going to your local court house in the city your business is located. Fees vary from city to city, but typically they are in the $23 range and are usually are good for 5 years.
C Corporation: Typically, a C Corporation shields the owners and shareholders’ from the corporation’s debts and liabilities. No sense worrying about losing the house and car here( but that’s not always the case).
Good Things: Separates personal assets and business debts. No limit on number of shareholders(ideal if you are thinking of selling your business)
Bad things: Several rules on forming one, as well as double the tax. You have to pay tax on the business earnings, as well as your own taxes as the owner.
How to form one: Consulting an attorney is one way to go. Another more easy and convenient way is to incorporate online. Click HERE for more information about incorporating online.
S Corporation: As an S corp, you can report your share of profit and losses in the company on your personal tax returns. The double tax does not really apply here.
Good Things: Independent legal structure, separates personal assets and business debts.
Bad things: Limited amount of shareholders with special restrictions (corporations and nonresident aliens may not be shareholders in an S corporation).
How to form one: Consulting an attorney is one way to go. Another more easy and convenient way is to incorporate online. Click HERE for more information about incorporating online.
General Partnerships: Similar to a sole proprietorship, but now it is not only you who is liable for business debts and lawsuits, but your partner(s) as well.
Good Things: Not many good things here. General partnerships allow a lot of risk exposure. Although GP’s are cheaper than forming a LLP( limited liability partnership).
Bad things: Large amount of personal liability for all partners in the business. Even with a formal agreement and insurance, General Partnerships are not recommended. Unless a formal written agreement is in place, any partner may form legal contracts without consent from the owners. Sounds like a worst nightmare for any business owner.
How to form one: Similar to filing a DBA, check with your local city’s requirements and fees.
Limited Partnerships: Usually consists of one or more general partners and one or more limited partners. General Partners usually make active business decisions while limited partners are usually investors in the business.
Good Things: Typically only the general partners are taxed, not the limited partners. You may want to look into forming an LLC or LLP instead.
Bad things: Unlimited personal liability for general partners. Again, say goodbye to your car and house.
How to form one: Consulting an attorney is one way to go. Another more easy and convenient way is to incorporate online. Click HERE for more information about incorporating online.
Limited Liability Partnerships (LLP): May be limited to attorneys or accountants depending on your state’s requirements. Again, you may want to look into forming an LLC instead.
Good Things: Easier conversion from a general partnership to an LLP than to an LLC or corporation
Bad things: Certain restrictions apply depending on your state and the type of business you own.
How to form one: Consulting an attorney is one way to go. Another more easy and convenient way is to incorporate online. Click HERE for more information about incorporating online.
Limited Liability Corporations: A great way to go if you would like to avoid the double taxation of a C corp and want to be perceived as a larger business (even if you work from home!)
Good Things: No limit on the number of owners as well as helps separate personal assets and business debts. Two types of taxations available for LLC’s compared to the one choice C Corporation. Owners do NOT need to be U.S. citizens or resident aliens( S, C corporations require this).
Bad things: Investors tend to choose to invest in C corps rather than LLCs. Some tax complications may occur(consulting your CPA or Attorney will help you with this)
How to form one: Consulting an attorney is one way to go. Another more easy and convenient way is to incorporate online. Click HERE for more information about incorporating online.
It may seem like forming a corporation of any kind is too costly for you at the moment, but be sure to remember how much more you will pay through a lawsuit. Forming a corporation and obtaining insurance for your business are important steps to take in protecting your business.
If you have spent time on starting your business, why wouldn’t you spend time on protecting it?
About the Author:
Young internet entrepreneur constantly helping others succeed and start their own businesses. It is what I LOVE to do!
Start yours now:
Article Source: ArticlesBase.com – Incorporating -what Should You Do?
Mail this post
Related posts:
