What is the Best Business Type for Your Emerging Business?
In the early days of your business, you likely filed your company as a “sole proprietorship” or “limited liability company” (LLC). However, as your business grows and changes, a corporation might make sense for your emerging business. Or perhaps making new tax elections for your current structure could be useful. Now the question might be, company or corporation?
What is a Sole Proprietorship?
A sole proprietorship is the simplest and most flexible structure for a single business owner. It is important to note that with flexibility comes few protections. Since no business entity is formed, the liability of the business also remains the liability of the owner. Meaning that people could go after the personal assets of the owner, such as their home, as well as the assets of the business.
What is an LLC?
LLCs are the most common choice for entrepreneurs and small businesses. They are generally easy to form and have protection from personal liability and tax flexibility. LLCs also allow flexibility in how the company is run. Additionally, most states have minimal requirements for yearly meetings and other typical corporate actions. The IRS does not have an LLC tax status, and an LLC is a pass-through taxation for single-member LLCs or taxed as a partnership. However, an LLC can request to be taxed as a corporation or an S-Corp. Overall, LLCs provide the most flexibility in one corporate structure. Although, if you are looking for investment, some investors prefer the traditional corporation structure, as LLCs are still fairly new and were not started until 1977.
What is a Corporation?
According to Forbes the C-Corp entity is also the most common entity formed. A properly formed corporation is legally separate from the individuals running the corporation, effectively protecting its shareholders from personal liability. A corporation, among other things, is easier to raise equity and, therefore, could also be easier to sell in the future. Corporations can be taxed as a typical corporation C-Corp or as a S-Corp by making elections with the IRS.
What is an S-Corp?
It is important to note that an S-Corp is not a business structure but rather a tax election available to corporations and LLCs. Depending on the profits of the business, among other qualifying factors, the owners or members of a business can file an S-Corp election request with the IRS. The declaration affirms the business is a separate and definite entity from the owner’s or members’ personal finances. For more information on the requirements for the S-Corp election, visit the IRS website.
Having an experienced attorney to guide your emerging business through every stage is a vital asset. Contact EmergeCounsel today for a free consultation.