I reccommend that you do your own paperwork and file with your state on your own. In Florida, it costs about $85 and can be done online.
The alternative - pay someone else and the price will, at a minimum, double. It is a simple process, but can understandably be "scary" to a new business owner.
Just do it.
Full Version: Incorporating
What are the pros and cons to incorporating? How about incorporating verses LLC and the pros/cons to that?
In California, becoming an LLC is an easy process. I suspect the answer to your question regarding which is best depends on the state in which you live.
An LLC gives you limited liability, but since you sell keychains you probably don't have much to worry about. I doubt if anyone is going to get seriously hurt by one of your products. For this reason, sole proprietorship might work.
We have two owners so LLC was necessary. The downside is that we have to pay $800/year in a minimum tax.
An LLC gives you limited liability, but since you sell keychains you probably don't have much to worry about. I doubt if anyone is going to get seriously hurt by one of your products. For this reason, sole proprietorship might work.
We have two owners so LLC was necessary. The downside is that we have to pay $800/year in a minimum tax.
Robert,
What are the differences between a corporation and LLC? Corporations do have limited liability as well. I have found this relativley new form of business organization "mysterious" - I don't quite understand it and haven't been able to find anything that clearly states the advantages over a traditional corporation. I have avoided paying a few bills to ask a lawyer.
Ultimate,
Incorporating your business has a few advantages.
1. There is the protection of limited liability. However, when you are a small company, creditors will require you to be personally liable as well. If your company is charged with some form of negligence, as a small company, its easier to point the finger at one person and hold them liable - you. The technical term is called peircing the corporate veil.
2. Incorporating does promote a sense of legitimacy with your market and the people you do business with.
3. Its easier to sell the company. In addition, if something happens to you, the company can technically keep going - assuming somebody else is there to make it happen.
4. You can accept equity based investments and distribute ownership.
Some disadvantages
1. Double taxation - company profits are taxed, then shareholders are taxed if any of the profits are distributed (dividends). This disadvantage can be avoided by filing as a Subchapter-S corporation. In this case, profits and losses are treated as personal income or losses. In other words, any gaines or losses the company incurs are distributed to the shareholders' personal income taxes.
2. Control of the company can get complicated with executives, board members, and investors. However, if you have to worry about this issue, incorporating is not an option and you've already made some money.
This is all that comes to mind for now. This list is not meant to include all advanatages and disadvantages.
What are the differences between a corporation and LLC? Corporations do have limited liability as well. I have found this relativley new form of business organization "mysterious" - I don't quite understand it and haven't been able to find anything that clearly states the advantages over a traditional corporation. I have avoided paying a few bills to ask a lawyer.
Ultimate,
Incorporating your business has a few advantages.
1. There is the protection of limited liability. However, when you are a small company, creditors will require you to be personally liable as well. If your company is charged with some form of negligence, as a small company, its easier to point the finger at one person and hold them liable - you. The technical term is called peircing the corporate veil.
2. Incorporating does promote a sense of legitimacy with your market and the people you do business with.
3. Its easier to sell the company. In addition, if something happens to you, the company can technically keep going - assuming somebody else is there to make it happen.
4. You can accept equity based investments and distribute ownership.
Some disadvantages
1. Double taxation - company profits are taxed, then shareholders are taxed if any of the profits are distributed (dividends). This disadvantage can be avoided by filing as a Subchapter-S corporation. In this case, profits and losses are treated as personal income or losses. In other words, any gaines or losses the company incurs are distributed to the shareholders' personal income taxes.
2. Control of the company can get complicated with executives, board members, and investors. However, if you have to worry about this issue, incorporating is not an option and you've already made some money.
This is all that comes to mind for now. This list is not meant to include all advanatages and disadvantages.
The Company Corporation is a popular online destination to incorporate. I believe there is also much information about LLC's, incorporating and such. 
Click here to view site.
Click here to view site.
I recently formed an LLC. I have a degree in accounting so I already had some background on tax advantages when I researched business entities. Because I am the only "member" or "shareholder", I considered LLC or S-corporation. If you allow the default designation to "disregarded entity" when you form your LLC or S-corporation, you can file Schedule C and be treated as a "sole proprietor" for either entity. If you are a partnership, you can also form either and still file Schedule K-1.
I went with LLC for the main reason that S-corporations in NY State must pay franchise taxes and LLCs don't. Some states make you pay franchise taxes for LLCs as well, so you'll have to check on the guidelines for your state.
Generally, LLCs offer you the best of both worlds - limited liability and tax treatment as an individual or partner. I wouldn't incorporate as a C-corporation unless you are rather large with many shareholders and ambitions of going public. But this is just my two cents.
I used an online service to file all of my paperwork. There is also alot of good information here as well. http://www.bizfilings.com
I went with LLC for the main reason that S-corporations in NY State must pay franchise taxes and LLCs don't. Some states make you pay franchise taxes for LLCs as well, so you'll have to check on the guidelines for your state.
Generally, LLCs offer you the best of both worlds - limited liability and tax treatment as an individual or partner. I wouldn't incorporate as a C-corporation unless you are rather large with many shareholders and ambitions of going public. But this is just my two cents.
I used an online service to file all of my paperwork. There is also alot of good information here as well. http://www.bizfilings.com
PURPLE KITTY, can you e-mail me on a quick relatied questioin! Thanks
info@atlastimports.com - Joe
info@atlastimports.com - Joe
We are Incorporated. And we also applied for the "S" Corporation "election".
We got it.
It will definately help with taxes...
From what I understand. "C" Corporations pay higher taxes, than "S" Corporations or LLC's. However , they ALL help protect you.
Good Luck,
Ben N
We got it.
It will definately help with taxes...
From what I understand. "C" Corporations pay higher taxes, than "S" Corporations or LLC's. However , they ALL help protect you.
Good Luck,
Ben N
Our biz is currently a Sole Prop. It was recently recommended that we form a LLC. A suggestion we are taking. heaven forbid someone gets a cut opening the shrink wrap on a DVD and bleeds all over the place.
I'm not losing MY house over someone elses stupidity.
Vin
I'm not losing MY house over someone elses stupidity.
Vin
| QUOTE |
| Our biz is currently a Sole Prop. It was recently recommended that we form a LLC. A suggestion we are taking. heaven forbid someone gets a cut opening the shrink wrap on a DVD and bleeds all over the place. I'm not losing MY house over someone elses stupidity. |
If you can afford it, I would strongly recommend everyone either form an LLC or s-corp. It's relatively cheap to do if you use an online service like bizfilings.com and just as easy as forming a sole proprietorship. If I had known how easy it was when I first started out with my sole proprietorship, I would have gone straight for the LLC.
With these types of companies, you have the best of both worlds - limited company liability and you can still file your taxes as a sole proprietorship. Make sure you follow all state directions as far as newspaper public notifications, etc. because your limited liability protection will not be in effect in some states until this is done. And most creditors will still ask for your social security number and hold you personally liable for debt. But you don't want to lose your house for something stupid as full moon says, you must protect yourself!
I'm hearing a lot of radio ads about incorporating in Nevada. The ads claim that you save lots of money. Does anyone have any experience in this area?
I think the main difference between c-corp and s-corp is (correct me if I am wrong, I'm still working through this with my accountant) is that s-corps are REQUIRED to pay the owner(s) a "reasonable" salary, and the tax on the profit left over is paid by the owner's at their individual rate. Single taxation. A c-corp pays taxes at the corporate rate on the profit, and then the owner(s) pay taxes on the same profit at their individual rate (their draw). Hence, the s-corp designation eliminates the "double taxation" thingamabob. (Correct me here, kitty).
I highly recommend checking with an accountant or a lawyer when deciding HOW to incorporate, even if you do the actual incorporation yourself.
The worst mistake I made was not hiring my accountant earlier than I did.
For what it's worth, I sleep a LOT better at night, because I have a lawyer and an accountant. I can let them deal with this stuff, and concentrate better on marketing and sales. I pay my lawyer about $100 a year to keep the corporate papers organized and make sure the i's are crossed and the t's are dotted (hahahahah). As for the accountant, well, he tells me all this stuff about he will be deciding this and that. I give him a CD with my quickbooks on it, and then go to bed.
Cheers!
I highly recommend checking with an accountant or a lawyer when deciding HOW to incorporate, even if you do the actual incorporation yourself.
The worst mistake I made was not hiring my accountant earlier than I did.
For what it's worth, I sleep a LOT better at night, because I have a lawyer and an accountant. I can let them deal with this stuff, and concentrate better on marketing and sales. I pay my lawyer about $100 a year to keep the corporate papers organized and make sure the i's are crossed and the t's are dotted (hahahahah). As for the accountant, well, he tells me all this stuff about he will be deciding this and that. I give him a CD with my quickbooks on it, and then go to bed.
Cheers!
| QUOTE |
| I think the main difference between c-corp and s-corp is (correct me if I am wrong, I'm still working through this with my accountant) is that s-corps are REQUIRED to pay the owner(s) a "reasonable" salary, and the tax on the profit left over is paid by the owner's at their individual rate. Single taxation. A c-corp pays taxes at the corporate rate on the profit, and then the owner(s) pay taxes on the same profit at their individual rate (their draw). Hence, the s-corp designation eliminates the "double taxation" thingamabob. (Correct me here, kitty). |
An s-corp is similar to an LLC. LLCs are relatively new and have, in the last few years, become very popular. The best part of an s-corp (or LLC for that matter) is that the entity is a pass-through and the profit or loss can be included on a personal tax return (that can be waived and an s-corp or LLC can be taxed as a corporation if the appropriate form is filed with the IRS). Owners are not required to collect a salary, since any profit or loss derived from the business is included on the tax return anyway, regardless of how much you pay yourself over the course of the year.
C-corps are full fledged corporations - a separate tax entity. Because they are separate, whoagirl is right that they are required to pay corporate taxes.
Here's a great link to more information about the differences:
http://www.bizfilings.com/learning/corptypes.htm#CvsS
The main difference between an LLC and an s-corp has to do with the number of shareholders allowed and who can be a shareholder. If you're a sole proprietor, that really isn't an issue. If you're a partnership, probably isn't an issue if you're small. Here's a link to those differences:
http://www.bizfilings.com/learning/corptypes.htm#LLCvsS
I'm a big advocate for the LLC for any small business owner just starting out. You can always change your corporate status as you grow. But, look around at just how many businesses are LLCs - even
Commerce is an LLC. One important note - I'm speaking strictly at the federal level here. Different states have different rules re: LLCs and you can find your state information at:http://www.bizfilings.com/learning/detailedstateinfo.htm
That said, this advice is excellent for anyone that really is green when it comes to all things accounting:
| QUOTE |
| I highly recommend checking with an accountant or a lawyer when deciding HOW to incorporate, even if you do the actual incorporation yourself. |
All in all, incorporating as an s-corp or LLC is very easy to do, relatively cheap and gives you piece of mind that your house will not be lost in a lawsuit.
Thanks, Kitty, for more excellent advice and cool links!
| QUOTE |
| Owners are not required to collect a salary, since any profit or loss derived from the business is included on the tax return anyway, regardless of how much you pay yourself over the course of the year. |
Then, for me, in my accounting ignorance, this would boil down to who is paying my social security tax, me or the corporation? i.e. the difference to the owner between self-employment income and a salary income?
I could have sworn my accountant said an s-corp HAS to pay a reasonable salary (sounded good to me!)
but p'raps he was referring to the above. I'm in Virginia. My head starts whirling with this stuff.Which just goes to show: hire an accountant or be one (like Kitty!).
| QUOTE |
| I could have sworn my accountant said an s-corp HAS to pay a reasonable salary |
That might be some kind of state requirement. Although, I don't see why it would. But every state income tax form is different. There might be a place on your state tax form that makes you identify what was collected as salary and was was net profit above that. The IRS sure doesn't care. All they want to know is how much did you make total (or loss) and pay them the taxes on time.
In fact, for my LLC the IRS cracks me up. New York State made me go through all this rigamarole to get a new number in order to collect sales taxes and special things I needed to do to put the legal notice in so many papers for such and such time. New York is so insane that bizfilings.com won't even do the newspaper notification for you.
I contacted the IRS and was told that to them it's just a name change and they don't care. LOL No notification to the IRS is necessary to go from a sole proprietorship/partnership to an LLC.
| QUOTE |
| Then, for me, in my accounting ignorance, this would boil down to who is paying my social security tax, me or the corporation? i.e. the difference to the owner between self-employment income and a salary income? |
I just saw this question.
For simplicity sake, I'll lump s-corp and LLCs together.
You have three ways to form and classify your corporation that we're discussing:
S-Corp/LLC Disregarded Entity
--For S-corp, you file form 2553 for special tax status. For LLC this is the default when you form this kind of company.
--You file any profit or loss as personal income/loss on your personal income tax return.
--If you are a partnership, you still file a partnership return also, but it is for informational purposes only (so the IRS makes sure that what each partner actually filed on his/her personal tax return is really what they got from the partnership). Note: some industries do not qualify for LLC status, but there is a similar status called LLP which actually limits your limited liability (i.e. lawyers, doctors, etc.)
--You pay the full percentage of FICA/Medicare taxes (which is something like 15% last I checked).
S-Corp/LLC Classified as a Corporation
--For LLCs, in order to be considered as a corporation, you must file form 8832 with the IRS and tell them that you want to be considered a corporation for income taxes purposes (can't imagine why any small business owner would want to do this, considering you're subject to additional taxes on corporate dividends and will end up being double-taxed)
--You file your personal income tax return and claim any salary you received from the corporation as income.
--The corporation files an income tax return and pays taxes on any net profit
--You personally pay for 1/2 of the FICA/Medicare taxes and the corporation pays the other 1/2.
C-Corp (or most other corporate entities)
--You are automatically a separate entity and do not have a choice about how to file your tax returns. You must file as the second example above.
There just ain't no way around it, Kitty you rock! 
You go, girl! (thank you)
You go, girl! (thank you)
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