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Incorporate Your Business

incorporate your business

Trying to incorporate your business can be a little intimidating when you’re not equipped with the basics of the process. There are seven entities in the business structure and they all come with benefits and drawbacks.

Michael Oates a certified public accountant and tax principal with Rothstein Kass-Certified Public Accountants , one of the top 20 largest international accounting and consulting firm based in the
U.S. says, “Figuring out the type of business to open is only half the battle of an entrepreneur. Your choice of business structure will largely determine how your business income will be taxed. The most popular and familiar legal forms of business are C corporations, S corporations and Limited Liability Companies (LLCs).”

“These may look like just a few simple words on a page, but they could mean thousands of dollars to your bottom line. Many business owners choose S corporations because they provide limited liability, income flow-through to their individual income tax returns and tax-free merger benefits. But like other business structures, S corporations have their disadvantages. If you already have or intend to elect this entity or any other entity, you should understand how they are structured so you can establish a financial plan.”(Inc.com)

According to BizStats.com for the year 2000, U.S. business entities collectively posted over $20 trillion in annual revenue. The number of Sole Proprietorships formed where up 1.9%, Corporations up by 2.2%, Partnerships down 0.6% and Limited Liability Companies where up 21.9%. Be sure to consider these stats when you incorporate your business.


Sole Proprietorship

  • easiest to establish


  • owned and operated by an individual (can have only one owner)


  • most states do not charge a filing fee


  • owner and business are considered one and the same (no differentiation between owner’s personal assets and assets of the business)


  • owner’s personal assets could be required to help pay off business debts


  • owner can do business under the owners name or apply for a DBA (doing business as), fictitous name, or assumed name which allows the business to perform under a different name (ex. Taylor Printing as apposed to Richard Taylor) DBA’s can be attained at the County Court House


  • profits or losses of the business are reported on the owners tax return


  • more difficult to secure capital through lending institutions which usually demand more formal entity structure



  • General Partnership

  • easy to establish


  • owned by two or more people (by means of written or oral agreement)


  • most states do not charge a filing fee


  • owners’ personal assets and assets of the business are one and the same (no differentiation between owner’ personal assets and assets of the business)


  • owners’ personal assets could be required to help pay off business debts


  • may file a DBA to differentiate between owners’ names and the business name


  • partners are typically responsible for the business-related actions of the other partners


  • more difficult to secure capital through lending institutions which usually demand more formal entity structure



  • C Corporation

  • most common corporate structure


  • articles of incorporation or certificate of incorporation must be filed with appropriate state agency and ongoing state requirements and filing fees do exist


  • separate legal entity owned by shareholders (shareholders cannot be held personally responsible for the debts of the corporation and the shareholder’s personal liability is usually limited to the amount the shareholder has invested in the company)


  • shareholders of C corporations may experience double taxation (corporate profits are taxed at the entity level first then if the corporation distributes a portion of remaining profits to shareholders the shareholder must report the dividend as personal income and pay taxes on it as an individual)


  • unlimited number of shareholders


  • ownership is easily transferable through the sale of stock


  • unlimited life extending beyond the illness or death of owners


  • certain business expenses may be tax-deductible


  • additional capital can be raised by selling shares of the corporation's stock


  • ongoing corporate formalities, such as holding and properly documenting annual meetings of directors and shareholders



  • S Corporation

  • more expensive to form


  • articles of incorporation or certificate of incorporation must be filed with appropriate state agency and ongoing state requirements and filing fees do exist


  • elects a special tax status with the Internal Revenue Service (IRS) which eliminates the possibility of double taxation common to C corporations


  • corporate income tax return is filed but no tax is paid at the entity level (profits or losses of the corporation are "passed-through" to the shareholders and are reported on their individual tax returns)


  • Shareholders are typically not personally responsible for the debts and liabilities of the business


  • unlimited life extending beyond the illness or death of owners


  • certain business expenses may be tax-deductible


  • capital can be raised by selling shares of the corporation's stock


  • shareholders must number fewer than 100; must be individuals, estates, or certain qualified trusts; and cannot be non-resident aliens


  • only one class of stock (disregarding voting rights of shareholders and all shareholders must consent in writing to the S corporation election)


  • ongoing corporate formalities, such as holding and properly documenting annual meetings of directors and shareholders



  • Limited Liability Company (LLC)

  • more expensive to form


  • provides both limited liability protection and pass-through taxation (a tax return for the LLC must be completed)


  • articles of organization or certificate of organization, must be filed with the appropriate state agency and the necessary state filing fees paid


  • any income or loss of the LLC as shown on this return is passed through to the owners (owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax)


  • legally exists as a separate entity from its owners (owners cannot typically be held personally responsible for the debts and liabilities of the LLC)


  • generally have no restrictions on the number of members allowed

  • members have flexibility in structuring the management of the company


  • does not require as much annual paperwork or have as many formalities as C corporations and S corporations


  • ownership is typically harder to transfer than with a corporation



  • Nonprofit Corporation

  • more expensive to form that unincorporated entities


  • formed for purposes other than making a profit


  • pursuant to different state laws than standard for-profit corporations


  • nonprofit articles of incorporation must be filed with the appropriate state agency and the necessary state filing fees paid (formation documents must include certain clauses and information, such as a very detailed business purpose statement, in order for the entity to qualify for tax-exempt status)


  • must apply for federal and state tax-exempt status (Form 1023 must be filed with the IRS, for state requirements, it is best to contact the department responsible for taxation in the state of formation)


  • provide limited liability protection (the personal assets of the directors, officers and members typically cannot be used to satisfy the debts and liabilities of the nonprofit)


  • certain nonprofits are eligible to receive public and private grants, making the obtainment of operating capital easier


  • ongoing state filing requirements and fees



  • Professional Corporations (PC’s) & Professional Limited Liability Companies (PLLC’s)

  • corporations and LLCs formed for the purpose of providing professional services


  • professional services is defined by state law and can differ from state to state (typically, professions that require a license, such as doctors, chiropractors, attorneys, accountants, architects, and engineers, are required to form PCs or PLLCs)


  • files formation papers with the appropriate state agency and pays the necessary state filing fees


  • require approval of the formation of the PC or PLLC by the state licensing body responsible for that profession


  • must contain the signature of a licensed professional in that field, who is often one of the directors of the PC or members or managers of the PLLC



  • More sources to help you incorporate your business!

  • IRS

  • BizFilings

  • SmallBizIncorporator



  • Published: 2006-04-10
    Author: Treci Cauthen

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