Are you thinking of starting a new business? We can help. We offer services similar to many of the online companies that help you incorporate and start your business. One crucial difference is that we will interact face to face, which will make it easier for us to provide you with feedback and guidance on choosing the entity that is best for you. Each entity type has its benefits & drawbacks and you must be informed before making the final decision. Once your corporation is all set up and ready to go, our bookkeeping and payroll specialists are available to help you on all other accounting aspects that will get your business on the proper path to success.
There are many types of corporations and many different structuring options within each type. The three primary types are
LLC – The incorporation process and operation of an LLC is simpler than other types of corporations. In this structure, the corporation is not taxed as an entity; instead, the taxes are levied against the individuals among whom the earnings are divided. However, the operating structure is limiting in some ways.
S-Corp – This type is a corporation that has qualified to operate under the S subsection of the IRS code. It is similar to an LLC in that it has a pass-through tax structure, meaning taxes are levied against individuals rather than the corporation. It allows for members and shareholders but is limited to a single class of stock. Additionally, members are required to be citizens of the United States.
C-Corp – This is the most complex, and most flexible option. It is taxed as an entity, and dividends paid to members are taxed as personal income. Therefore, a C-Corp can result in double taxation with certain business models. However, it can continue to exist and operate after the departure of a member. It also has the flexibility of allowing multiple classes of stocks, and there is no citizenship requirement associated with membership.
Your business is considered to be a sole proprietorship. This means you will be personally responsible for any lawsuits, debts, liabilities, and financial losses. You will not have “corporate protections,” and creditors may seize your home, car, savings, and other personal assets. Incorporating also gives your business credibility, which supports your ability to secure loans, raise capital, and grow. Given the multiple substantial risks, our team takes guidance on business formation and structure very seriously. We work with you to arrive at the best incorporation strategy for your organization.
We consider the nuances of your business and situation when recommending the most appropriate structure. With that being said, an LLC may be most appropriate for:
Those who prefer a simplified “pass-through” tax structure, which avoids the double taxation of a C corporation (corporate + personal dividend taxes)
Clients who desire greater operational flexibility and less onerous administrative burdens, as there are no requirements for annual meetings, bylaws, and extensive paperwork, nor are there rigid, board-driven hierarchies
Members retain limited liability protection, so they are not personally responsible for lawsuits, debts, and other liabilities.
When most people think of corporations, they immediately consider C-Corp and S-Corp structures. C-Corp is the most common. While there are no limits on ownership, double taxation is a significant consideration as C-Corps are subject to corporate and personal dividend taxes. S-Corps avoid double taxation because they are pass-through entities. Income, deductions, credits, and losses all flow through to the shareholders. There are strict eligibility requirements, however, because this designation is limited to corporations with no more than 100 shareholders. Also, only one class of stock is allowed (which may constrain investment flexibility in the future). While less common, Benefit Corporations, Nonprofit Corporations, Professional Corporations, and Closed Corps may be discussed as appropriate to your business’s characteristics and needs, too.
The easiest transitions are generally from sole proprietorships to LLCS and LLCs to S-Corps. The most complex transitions involve moving from LLCs to C-Corps and from Corporations to LLCs, the latter of which can trigger significant tax consequences (as it would be treated as a liquidation of one’s assets by the IRS). Moving LLCs to C-Corps involves establishing bylaws, issuing stock, and special filings (“Statutory Conversion”). The simpler, LLC to S-Corp route may involve a simple tax election. By partnering with Whyte & Associates, Inc, we take the mystery and complexity out of the process. We provide a streamlined path to a new entity/structure that better aligns with your goals. It should be noted that any time or effort put into this process pales in comparison to the benefits that may be associated with transitioning to a structure that minimizes your risk exposure and/or helps you save on taxes as your business expands and hires new employees.
When incorporating your business or non-profit organization, many of the decisions that you make early in the process will have a considerable impact on your financial structure and operations in the future. Let us help you make smart choices for a solid foundation for a successful future. Call us today!
