Have you finally decided to start your business?
If so, you’re likely stumped on how to incorporate your business and what types of incorporation work best for your venture.
You want to ensure that your incorporation helps protect your business from liability and works well for tax purposes.
This short guide will teach you how about the process of incorporation so you can decide the best route for your company.
Here’s what you need to know:
S Corporation
The S Corporation is often one of the easiest business structures for most entrepreneurs. With this structure, you can have up to 100 shareholders and they must be U.S. citizens or residents.
With the S Corporation, the company only pays tax once per year. You can also offer your stock to shareholders — but these can only be common stock.
You can consult a lawyer on setting up an S Corporation. On average, it’ll only take a few days for this type of company to get structured. If you’ve worked as a sole proprietor, this might be the next ideal step for your business.
C Corporation
This type of corporation gets taxed twice per year. The C Corporation pays income tax once per year. Each shareholder also pays income tax once per year from their earnings from the company.
Anyone can own shares of a C Corporation and there isn’t a limit on how many shareholders the company can have.
You can offer preferred stock in addition to common stock. This business structure can take longer to incorporate and is often more complex.
General Partnership
If you run a business with someone else, you should consider structuring a general partnership.
With this structure, the ownership of the company is split between two individuals. These individuals are the shareholders of the company and have to agree upon each decision.
This is a great business structure if you don’t want to carry the burden of running a company on your own. You can often depend on your partner to bail you out in difficult situations.
Limited Liability Company
If you want to scale your business faster, then a Limited Liability Company (LLC) is the ideal structure.
This is an easy business structure that you can register within a few weeks. It also provides you with greater protection from potential lawsuits.
This type of business structure also gives you credibility in your industry. You can hold the company on your own or distribute it among partners.
Now You Know the Process of Incorporation
Now that you know the process of incorporation you can determine which type of incorporation works best for your business.
For most entrepreneurs, the S Corporation and C Corporation are the easiest business structures. These often have the most favorable tax obligations as well.
If you run a business with a partner, then opting for a General Partnership makes it easy for running the company. A Limited Liability Company works well if you want to scale your business and need added legal protection.
You can find more business tips on our blog!
