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Why You Should Organize Your Business

WHY YOU SHOULD ORGANIZE YOUR BUSINESS

Starting and running a business involves a certain amount of risk - a risk not to be underestimated - and one that requires a careful evaluation of the specific characteristics of each type of business structure, and how they apply to your specific needs. BEFORE making any decisions, please consult a legal or financial advisor. All information we provide is not to be construed as legal advice.

Some Factors to Consider:

  • Personal Liability and Protection of Personal Assets
  • Tax Advantages
  • Opportunity to Raise Capital for Operation and Future Growth
  • Protect Your Business Name
  • Easy Transfer of Assets and Ownership
  • Establishing Business Credibility

Although sole proprietorships and general partnerships are relatively inexpensive to establish and maintain, neither afford protection from personal liability. Owners or partners are personally liable for all business debts.

With the formation of a corporation or limited liability company, a separate legal entity is created - having the power to enter into contracts, own and dispose of assets, and generally operate like a sole proprietor, except that only the corporation’s assets are at risk (not the owner/shareholder’s personal assets). It IS important to note that a corporation or llc must comply with all corporate formalities (such as board and shareholder resolutions, annual meetings to elect directors and officers) and keep records of all activity in order to maintain a credible corporate structure.

Corporations and limited liability companies are afforded tax-saving options not available to sole proprietorships and partnerships, such as the establishment of pension, profit sharing and stock ownership plans, which lower the corporation’s taxable income. Medical, life and disability insurance costs can be tax deductible, and a corporation can own shares of stock in another corporation and receive a percentage of dividends tax-free. Subchapter S corporations are granted a special tax status, which eliminates double taxation of income – income is personally taxable to the shareholders.

Forming a corporation, limited liability company or limited partnership affords some protection of the business name – once the organizing document is accepted and filed, no other corporation, limited liability company or limited partnership will be filed using the same name or name too similar (standards which are set by the office of the Secretary of State, or appropriate filing officer). This name protection only applies within the state you are filing, however. Filing a Trademark for your business name further protects you from others using the same name on a national level. It may be to your advantage to utilize our trademark services so that as your business expands, you maintain business recognition and credibility anywhere you chose to conduct business.

The following chart to compares the basic characteristics of different forms of business entities. Before making any decisions, please consult with a Tax Professional and/or legal advisor. The following is provided for informational purposes only.

BUSINESS COMPARISON CHART

Type of businessOwnershipLiabilityTax TreatmentKey Characteristics
Sole Propietorship Individual owner with direct control Unlimited Personal Liability No double taxation Difficult to transfer ownership/assets
General Partnership Two or more individuals/entities controlled by partners & agreements Unlimited Personal Liability Partners percentage of income/loss included on personal return Responsible for acts of partner(s)
Limited Partnership Two or more individuals/entities two classes of owners, general and limited partners make all decisions General partners are fully liable, limited partners are liable to the extent of capital invested Same as a general partnership Formation and changes in structure are complex
C Corporation Shareholders (any number)Board of Directors and Officers manage business Separate Legal Entity ,generally no liability for shareholders Double taxation Easy to transfer ownership and raise capital
S Corporation (Must file IRS form 2553) Limited to 100 Shareholders, Board of Directors and Officers manage business Same as C Corporation No corporate tax, taxed as ordinary income to shareholders Easy to transfer ownership and raise capital, only one class of stock permitted
Limited Liability Company One or more members, may also employ manager(s) Generally no liability for members Freedom to choose tax structure Flexible tax and management structure, Easy to transfer ownership, beneficial for real estate holding
use our helpful glossary of terms to better understand what you need

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