Start a New Business
Today, there are several business entity options available for entrepreneurs. Like anything else, each of them has advantages and drawbacks. We offer the knowledge and skill to assist you with choosing the right type of entities, filing all required documents, keeping your accounting books and preparing your tax returns.
A sole proprietorship is a business entity that is virtually indistinguishable from its owner. The cost to create it is frequently only a small one-time fee to the state or county officials to register a fictitious business name.
There is a price for this easy set-up, though. Sole proprietorships cannot take advantage of special business income tax rates since all income is considered individual income. Sole proprietors are also not protected from personal liability if they get into trouble with a client.
A "C" corporation is a standard state-formed corporation. It is a legal entity once it is formed, so it files its own taxes and is responsible for its own dealings. A "C" corporation can have unlimited numbers of shareholders, and those shareholders can be any kind of legal entity.
A board of directors must be elected, annual meetings must be held, minutes of corporate meetings must be kept, and stock must be issued. And all this applies even if you are the only shareholder in the corporation. If these formalities aren't followed, you run the risk of losing your personal liability protection if a court decides that your corporation was just an alter ego of yourself created to keep you safe (sometimes referred to as "piercing the corporate veil").
Additionally, since corporations are taxed on their income and shareholders have to claim dividends as taxable income themselves, shareholders of a "C" corporation are "double taxed" on their dividend income. One way to avoid this is to not issue dividends and simply re-invest your income back in the company. Spending your income on items that are tax-deductible is another way. You could also look into forming an "S" corporation.
An "S" corporation is much like a "C" corporation in that it is also its own legal entity, protects its shareholders from legal liability, and requires a significant amount of effort and money to start and maintain. However, an "S" corporation allows shareholders to claim their share of the corporation's income directly on their personal tax return. This gets around the "double taxation" problem of a "C" corporation. The only drawbacks of an "S" corporation are that they may cost a little more to form and they are generally limited to a maximum of 100 shareholders. This makes going public with an "S" corporation practically impossible. However, if your intention is to keep your business relatively small, this is an excellent option.
Limited Liability Company
A limited liability company (LLC) is essentially a hybrid of a corporation and a partnership. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit "single member" LLCs, those having only one owner. The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file as a corporation, partnership or sole proprietorship tax return.
In a nutshell, a non-for-profit corporation is an organization formed for the purpose of serving a purpose of public or mutual benefit other than the pursuit or accumulation of profits. A nonprofit is not a way for ordinary businesses -- or people -- to shield assets or avoid paying income tax. It is not an alternative business form for any regular type of business. In the United States, nonprofit organizations are formed by incorporating in the state in which they expect to do business. The act of incorporating creates a legal entity enabling the organization to be treated as a corporation under law and to enter into business dealings, form contracts, and own property as any other individual or for-profit corporation may do. Congress and the internal revenue service have determined that only specific types of organizations
can qualify to be nonprofit, or tax exempt organizations. ("Tax exempt is the term used for nonprofit by the IRS and most other government agencies.)