People form business entities for several reasons. The most common reasons include:
- Protection from personal liability.
- Protection of assets.
- Tax advantages.
- Appearance of legitimacy.
Once you have decided to enter into business on your own or with one or more partners, you need to decide which type of business entity to form. A corporation or a limited liability company are the two most common types of business entities being formed today.
A corporation is a very popular type of business entity for mid-sized businesses and larger. One or more people own shares of the company and are called shareholders. The shareholders can elect a board of directors to manage the company. The board of directors can elect officers such as a president, vice-president, treasurer, and secretary to run the day-to-day operations of the company. However, smaller corporations with only a few shareholders can adopt a close corporation agreement that allows the shareholders to serve the role of the board of directors and officers.
Corporations are often referred to as either a S Corporation or a C Corporation. These are both formed the same way. The difference is merely how the corporation has elected to be taxed by the IRS. A corporation that has elected C status (C-Corp) will have so called "double taxation." The corporation is taxed on its earnings, then the shareholders are taxed again on the dividends they receive from the corporation. A corporation that has elected S status (S-Corp) is only taxed once. The earnings flow through directly to the shareholders. There are several factors to consider to determine which tax election is most beneficial for a particular company. We can help you analyze your options.
Limited Liability Company
A limited liability company (LLC) is the most popular type of business entity in recent years, especially among small to mid-sized businesses. One or more people own a portion of the company and are called members. The members can manage the LLC, or they can appoint a separate manager or group of managers. An LLC offers much of the same benefits of a corporation, but an LLC is easier to form and has fewer formalities to follow over time.
Hurley Law has extensive experience in advising clients on the proper type of business entity to form. During the initial consultation, we will learn about your business goals and recommend the best entity for you.