Business Planning Services
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We have 20+ years of experience in Business Planning and drafting business structures such as Corporation and LLCs.
Choosing a business structure.
The business structure you choose influences everything from day-to-day operations to taxes to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits. Call us to set up a meeting to discuss the best options for you - (800) 530-4529.
Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location and type of business. This could also result in tax consequences and unintended dissolution, among other complications. This is why you should seek the advice of an attorney before setting up your business structure.
There are many forms of business structures, including a Sole Proprietorship, a Partnership, a Limited Liability Company (LLC) and a Corporation (INC).
In general, the most popular business entity is the S Corporation, which is described below. But first let's go over all the alternatives:
Sole Proprietorship. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business. Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Sole proprietors are still able to get a trade name. It can also be hard to raise money because you can't sell stock, and banks are hesitant to lend to sole proprietorships. Finally, Sole proprietors pay “self-employment” tax of about 15.3% that can be eliminated or reduced with other business entities. Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.
Partnerships. These are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability also tend to have limited control over the company, which is documented in a partnership agreement. Profits are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes of about 15.3%. Limited liability partnerships are similar to limited partnerships but give limited liability to every owner. An LLP protects each partner from debts against the partnership, they won't be responsible for the actions of other partners but are also subject to self-employment taxes of about 15.3%. Partnerships can be a good choice for businesses with multiple owners, professional groups (like attorneys), and groups who want to test their business idea before forming a more formal business.
Limited Liability Company (LLC). An LLC lets you take advantage of the benefits of both the corporation and partnership business structures. LLCs protect you from personal liability in most instances. Profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment taxes of about 15.3% unless the LLC makes an S-Corporation Election. LLCs can have a limited life in many states. When a member joins or leaves an LLC, some states may require the LLC to be dissolved and re-formed with new membership — unless there's already an agreement in place within the LLC for buying, selling, and transferring ownership. Additionally, some licenses professions, such as the legal profession, do not allow their licensees to use an LLC – instead thye require them to use a Corporation or some type of partnership. LLCs can be a good choice for medium- or higher-risk businesses and are usually used for business that own real estate because titling real estate in or out of an LLC is usually not considered a change in ownership for property tax reassessment purposes.
Corporations (INC). All corporations start of as a C corporation, which is a legal entity that is separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting. Unlike sole proprietors, partnerships, and LLCs, C corporations pay income tax on their profits. Corporations have a completely independent life separate from its shareholders. If a shareholder leaves the company or sells his or her shares, the C corporation can continue doing business relatively undisturbed. Corporations also have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also be a benefit in attracting employees.
The most popular corporate structure is the S corporation which is a special type of corporation that's designed to avoid the double taxation drawback of regular C corporations. S corporations allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates. In general, a S corporation starts off as a C corporation and then the corporation files an “S corporation election” by filing IRS Form 2553. Not all states tax S corps equally, but most recognize them the same way the federal government does and tax the shareholders accordingly. S corporations also have an independent life, just like C corporations. If a shareholder leaves the company or sells his or her shares, the S corporation can continue doing business relatively undisturbed. S corps can be a good choice for a business that would otherwise be a C corporation but meet the criteria to file as an S corporation, such as having less than 100 shareholders.
Choosing a business structure.
The business structure you choose influences everything from day-to-day operations to taxes to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits. Call us to set up a meeting to discuss the best options for you - (800) 530-4529.
Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location and type of business. This could also result in tax consequences and unintended dissolution, among other complications. This is why you should seek the advice of an attorney before setting up your business structure.
There are many forms of business structures, including a Sole Proprietorship, a Partnership, a Limited Liability Company (LLC) and a Corporation (INC).
In general, the most popular business entity is the S Corporation, which is described below. But first let's go over all the alternatives:
Sole Proprietorship. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business. Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Sole proprietors are still able to get a trade name. It can also be hard to raise money because you can't sell stock, and banks are hesitant to lend to sole proprietorships. Finally, Sole proprietors pay “self-employment” tax of about 15.3% that can be eliminated or reduced with other business entities. Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.
Partnerships. These are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability also tend to have limited control over the company, which is documented in a partnership agreement. Profits are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes of about 15.3%. Limited liability partnerships are similar to limited partnerships but give limited liability to every owner. An LLP protects each partner from debts against the partnership, they won't be responsible for the actions of other partners but are also subject to self-employment taxes of about 15.3%. Partnerships can be a good choice for businesses with multiple owners, professional groups (like attorneys), and groups who want to test their business idea before forming a more formal business.
Limited Liability Company (LLC). An LLC lets you take advantage of the benefits of both the corporation and partnership business structures. LLCs protect you from personal liability in most instances. Profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment taxes of about 15.3% unless the LLC makes an S-Corporation Election. LLCs can have a limited life in many states. When a member joins or leaves an LLC, some states may require the LLC to be dissolved and re-formed with new membership — unless there's already an agreement in place within the LLC for buying, selling, and transferring ownership. Additionally, some licenses professions, such as the legal profession, do not allow their licensees to use an LLC – instead thye require them to use a Corporation or some type of partnership. LLCs can be a good choice for medium- or higher-risk businesses and are usually used for business that own real estate because titling real estate in or out of an LLC is usually not considered a change in ownership for property tax reassessment purposes.
Corporations (INC). All corporations start of as a C corporation, which is a legal entity that is separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting. Unlike sole proprietors, partnerships, and LLCs, C corporations pay income tax on their profits. Corporations have a completely independent life separate from its shareholders. If a shareholder leaves the company or sells his or her shares, the C corporation can continue doing business relatively undisturbed. Corporations also have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also be a benefit in attracting employees.
The most popular corporate structure is the S corporation which is a special type of corporation that's designed to avoid the double taxation drawback of regular C corporations. S corporations allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates. In general, a S corporation starts off as a C corporation and then the corporation files an “S corporation election” by filing IRS Form 2553. Not all states tax S corps equally, but most recognize them the same way the federal government does and tax the shareholders accordingly. S corporations also have an independent life, just like C corporations. If a shareholder leaves the company or sells his or her shares, the S corporation can continue doing business relatively undisturbed. S corps can be a good choice for a business that would otherwise be a C corporation but meet the criteria to file as an S corporation, such as having less than 100 shareholders.
Disclaimer: Testimonials or endorsements do not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.