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Tell us more. Tell us why you want to switch.
Sole ownership is the MOST common form of business. Profits are taxed as income to the owner.
INC is a Corporation. You have a choice of C corp or an S Corp. Corps are separate legal entities.
Corporations are subject to "double taxation"
LLC or Limited Liability Co are rapidly becoming very popular because it provides limited liability.
Do you have an Accountant?? How about a Lawyer.
Hope this helps, LUCKIEST
It all depends upon your individual circumstances. Both forms of ownership tend to lend more credibility to any business (especially in e-commerce) than sole proprietorships. Both offer excellent personal asset protection when managed properly. Three areas to consider are (1) ease of organizational management where LLC has a distinct advantage over Inc since the amount of required paperwork tends to be considerably less and can be simpler for non-legal types to do themselves. (2) Cost of organization. LLC's are now the trendy start-ups and have managed to price themselves under Inc's to have business brokers create for you (we used The Company Corporation for our incorporation and they have some good info on their web site about both forms as well as pricing) but prices vary by state. (3) Legal considerations. In our heavily regulated industry this is what sold us on incorporation. Corporations have been around for a long time and have a very standardized legal precedence set already. It appears legal rulings concerning LLC's are still in developmental stages and have seen some awkward rulings (often reversed in appeals). In our situation the solid status of corporations being entities of their own was paramount. Understand that I am a businessman and not a lawyer or accountant. Be sure to include your own lawyer and accountant in any ownership decisions you make. They may be the deciding factor in your business and tax situation. The triple bottom line People - Planet - Profits. Good Luck and Good Business.
LLC's offer you the liability protection of a corporation, yet involve less paperwork to manage than a corporation, and are taxed like partnerships (helping you avoid "double taxation"). If you ever plan to operate in different states, however, LLC's can get tricky and may actually end up requiring more paperwork and money than a corporation. Also LLC's cannot go public (sell stock). Finally, corporate law is more stable and straightforward than the regulations authorizing LLC's -- so more attorneys understand corporate law, and they generally charge less for corporate advice than LLC issues.
If your business qualifies (fewer than 35 shareholders, no foreign ownership, and a few other limitations), you might consider an S Corporation as a sort of compromise. It's fairly easy and inexpensive to create, and offers most of the advantages of a regular C corporation without the double taxation.
Hope this helps. Best wishes!
If it is just you, I'd say the LLC will offer you the flexibility tax wise that most sole business owners look for. Speak to an accountant but their are tax advantages for both.
Just a follow-up . . . did you make the switch? Was any of our input helpful? Thanks!
I seem to hear this quetsion a lot, and since this remains 'unanswered' I thought I would bounce it back to the main stage.
LLC's are the newest form of business entity. They are customed to act as limited liability sole proprietorships, partnerships, or corporations.
Corporations ae strictly corporations and cannot be designated as a limited liability sole proprietorship or partnership.
Bearing in mind the two primary reasons for incorporation (limited liability and tax planning) your choice would depend on several business-based factors that would maximize your liability protection and optimize your tax situation.
Here are some things to keep in mind when making this decision as it can be costly on the road ahead:
1. What are the major risks inherent in your business?
Be sure to list not only risks leading to formal lawsuits, but risks that affect your ability to earn revenue and keep costs under control.
2. How often are and to what degree will risks affect your business decisions?
With respect to lawsuits, determine how likely are participants in your industry to become enagaged in a lawsuit. Looking at your processes be sure to identify those "jump off" points that could spark legal action.
3. Are there any peculiar accounting practices that are not currently transparent for tax or corporate association purposes (relationship between company and owner)?
Talk to an accountant for this one as this questions addresses complex transactions and relationships in small business.
4. What is your vision for growth?
It is best to begin operating as you envision how the future business will be in the future. If plans are to go public, then operate as a public company - observing how to accomplish goals as public companies do.
5. What is the "end-game"?
Be sure to discuss with your accountant and attorney your business succession plan. Whether the business is an overnight success, durable bread winner, or an idea "whose time has not yet come", be sure that windup and succession are clearly mapped in your plan.
6. What is your current tax situation?
Assess thorougly your current tax situation. Income from the business can come in many forms. Be prepared to account for those varied revenue streams.
7. Any outstanding litigation?
Be sure that your starting the business does not aggravate any current or outstanding lawsuits.
As an accountant, I've provided some of the basic questions asked before an incorporation is performed. If you have further questions, please do not hesitate to let me know.
To be honest with you an LLC is for a person who has a job/9-5 making $80,000 per & has a business making the same amount. The biggest mistake most small business owners make is not filing the correct paperwork to change their original corporation from a C corp to an S corp. Remember C corps get taxed twice & S corps get taxed once. Plus C corps generally tend to carry 40 or more employees but S corps are generally smaller. LLC give you freedom from mixing your money together, you can receive a W2 from both your job and your company without the headache of the capital gain situation.
Hi there, Back on Oct.30, you posted "thinking about having my business switching from sole ownership
to either a LLC or INC"
It is almost a new year. Have you made any changes based on the responses you received??.
They decided to retire... :p
There are two types of corporations S and C.
With the exception of the difference in tax treatment, a C corporation and S
corporation have many of the same attributes.
The biggest disadvantage to forming a C corporation (or S corporation) is that you have to pay a state filing fee, and if you have a lawyer draft the forms you have those costs as well. Most states charge an annual fee (usually around $100) to keep the corporation in good standing.
The business model of LLCs forms the best business format for small business operators. LLCs are easy to operate and enjoy less regulation under state law.
Here is comparison chart between corporations and LLC http://www.clickandinc.com/llc-s-corp-c-corp-chart.asp. For more information you can also check this site http://blog.clickandinc.com/