You put an enormous amount of yourself, and your life, into your business – so choosing and structuring the right type of entity for it is essential. Our incorporation services will help you to choose which corporate structure is right for you, and will then walk you through each of the intricate steps of ensuring that your company is properly set up.

Choosing and Maintaining the Right Business Structure

When choosing the right entity for your business, it is important to have a good understanding of how each one operates. That is because there may be advantages and drawbacks to each type of entity, depending upon the business you are in and what the ultimate goals are for your company.

C-Corporation

C-Corporations, or C-Corps, are considered to be a separate entity from their owners. These types of corporations provide their shareholders with protection from liability and responsibility from debts and contracts.

The profits for a corporation are taxed at the corporate level whenever the income is earned, and are also taxed at the individual shareholder level. One of the biggest reasons that business owners choose the C-Corp entity structure is for the protection that it provides for the personal assets of the shareholders.

With this form of ownership, an owner or shareholder cannot lose more than they have invested into the corporation. Also, if the business goes bankrupt, the shareholders will not be liable for its debts.

The shareholders of a C-Corp do not report any of the business’s income or expenses on their individual tax returns. Rather, with this type of entity, the C-Corporation files its own tax return, and it pays its own income taxes – typically at a lower tax rate than an individual – while the individual shareholders report and pay personal income taxes only on money that is paid out to them by the corporation.

This particular type of business entity may be appealing to a business owner who wishes to have a more formal business structure, along with limited liability, as well as the ability to reduce their overall taxes while accumulating assets in the company.

S-Corporation

An S-Corporation, or S-Corp, is similar to a C-Corp in that it can provide its shareholders with protection from liability. However, unlike a C-Corp, the S-Corp is exempt from federal income taxation. Rather, taxes are paid solely by its individual shareholders.

S-Corporations are recognized by the law as an individual entity, one that is separate from its shareholders – and can oftentimes be treated as a human being. The shareholders of an S-Corp will enjoy limited liability from the corporation’s debts and liabilities that are incurred by the business, as well as liability that may stem from possible legal action (with the exception of fraudulent activity).

An S-Corporation structure may be a good choice for those business owners who want the limited liability, along with the more formal structure of a corporation, but with the pass-through taxation of the business’s profits.

Partnership

A business can also be set up as a partnership. In this type of entity, two or more individuals will share both the management of the business, as well as the profits. There are actually two primary forms of business partnerships. These include:

• General Partnership – In a General Partnership, each partner is not just personally liable for their share, but also for the entire amount of the liabilities and obligations of the business. The partnership does not pay any income taxes, but rather it files an informational tax return. Each partner will then report their share of the business income and expenses on their own individual tax return.
• Limited Partnership – In a Limited Partnership, the partners are afforded with some amount of limited liability. Here, there are one or more general partners, along with one or more limited partners. The general partners make decisions and run the company, while the limited partners (or silent partners) do not take part in its operation. In this case, the general partners are solely liable for the liabilities and obligations that are incurred by the company.

Limited Liability Company (LLC)

A Limited Liability Company, or LLC, essentially combines many of the corporate and partnership forms of business. With an LLC, parties control shares of the company and like corporations, their liability for the operation of the business will be determined by their level of investment. However, similar to with a partnership, income tax is not paid at the LLC level, but rather it will be “passed through” and instead taxed at the shareholder level.

Typically, the members of an LLC cannot lose more than the amount that they have invested into the business. So, if the LLC goes under, the members will not be liable for its debts. Likewise, if someone should sue the LLC – and it is found liable – then the plaintiff could take the LLC’s property in order to satisfy the judgment, but not the personal assets of the members.

For those who want the same limited liability as a corporation, yet without the formal structure and more cumbersome ongoing requirements, the flexibility and the simplicity of an LLC may be an appealing advantage.

Deciding on the Best Option

Choosing the best way to legally structure your business is one of the most important decisions that you will make. When considering the business structure that will be best for your company, it is important to focus on four key areas, including:

• Taxes
• Potential Liability
• Investment Needs
• Cost to Establish and Maintain

Having an expert on your side to walk you through the best alternative, and to answer any questions along the way, can be crucial. Let us help guide you, based on your company’s specific goals.

Quarterly Tax Planning

As a business owner, you are also responsible for filing quarterly taxes. Yet, running the day-to-day operation of your company can be much more than a full-time job in and of itself. Taking the time to project your income and set up the withholding on your estimated tax payments can be a long and complicated process.

But, if you have a partner on your side, it can make it much more time efficient, allowing you to concentrate on what you do best – run your business.

We can implement our ongoing quarterly tax planning services in order to help you secure the best possible tax position for the best available benefits.

Ready to get started? Contact us for more information today.