Continue
Starting a business requires more than just ideas. It requires putting together processes that will protect your investment and move the business forward.
Starting a new business is exciting, but you must protect yourself and your business along the way. Choosing a business type can be daunting, but the information below should help you get started.
A corporation is a legal entity distinct from its owners, where the owners, or shareholders, are usually only liable up to the amount of money they have invested.
To form a corporation a creator must file "articles of incorporation" with the state stating corporation's name, the number of shares, its purpose and the name and address of the incorporator(s). Because the owners of the corporation own shares in the company, it is relatively easy to transfer ownership to other people or to have new owners join the corporation. For taxation, corporations are taxed separately from its shareholders. The shareholders are then also taxed when they receive a dividend (payment) from the corporation. The corporation's tax liability may be reduced by paying tax deductible salaries, however the IRS may see this as a "disguised" dividend and tax it.
Lau & Nicolello, LLC can help get your business setup and running quickly and efficiently. Please contact us for more information.
A Limited Liability Company, or "LLC", is similar to a corporation because it is an entity distinct from its owners, except an LLC is owned by "members", and the owners are usually only liable up to the amount they invested.
LLCs are formed by filing "articles of organization" with the state you are planning to have your business located. The management of the company may be done through the members or management members. Profits are usually shared by the amount of capital each member has contributed to the LLC.
Unlike a corporation, transfer of ownership can be complicated and may be limited to only financial interests, not governance. The main attractiveness with LLCs is the ability to be taxed as a partnership while having limited liability. Income earned through the LLC is offset by expenses and the remaining money is paid to the members as a "distribution". Generally the LLC does not pay taxes, instead the members are responsible for paying ordinary income tax on their distributions from the LLC, and thus avoid the double taxation problem of traditional corporations.
LLCs do have some drawbacks, such as the cost to form one may be more expensive than other business forms, and there may be other requirements.
Contact Lau & Nicolello, LLC for more information on creating your LLC.
The most basic partnership is a general partnership. However, there are a variety of partnership structures available to business owners which can limit liability of the partners such as limited partnerships and limited liability partnerships.
A general partnership may be created by two or more people either by agreement or by simply doing business together. By default, the partners are entitled to an equal share of profits and losses, though it is usually a good idea to have a partnership agreement detailing how profits, losses and other major business decisions are handled. The simplicity of a general partnership can be outweighed by the full liability a partner may take on for the partnership's debts or other liabilities.
Limited partnerships and limited liability partnerships are created by filing with the state in which you intend to be based. These partnerships offer some protection to certain individual partners for acts of other partners and debts of the partnership. Transfer of ownership in a partnership may require the consent of all partners, but these terms should be stated in a well thought-out partnership agreement. The common factor among all partnerships is the treatment of taxes. Each partner pays their own tax on the income and expense, which "flows though" to the partner based on ownership interest.
Partnerships are still very popular in today's business world, but there may be better options for you and your business. Contact us for help in deciding how to proceed with your business.
