How Should I Incorporate My Business?
As a new or prospective business owner, one of the issues you will have to face early in your company’s life is how to incorporate it. Incorporation means registering your business with the Internal Revenue Service to become its own legal entity, known as a corporation.
There are a few different ways to incorporate your business. Each has its own rules for taxation, managing your company’s financial affairs, and managing the relationship between the company’s shareholders and its employees. Researching the different types of corporations that you may register your company as should be one of the first things you do when you decide to go into business. By understanding the different corporation types, you can determine the best type for your business’ needs.
Once you decide to incorporate, contact an experienced business attorney to help you work through the process of registering your company. There are a lot of steps involved with incorporation and ways to potentially lose money if you do not choose the type that is best suited to your business model.
C corporations are owned by their shareholders. In this type of business entity, each shareholder’s responsibility for the company’s debts are limited to his or her investment in the company. Some characteristics of C corporations include:
- No limit on the number of shareholders it may have.
- Taxes on both corporate profits and shareholder dividends.
- The company is taxed separately from its owners.
Business owners who want to keep company profits within the business to help it grow and need flexible options for sharing profits among shareholders should consider registering as C corporations.
C corporations are sometimes taxed twice. S corporations have a special tax category that prevents this from happening. Other characteristics of s corporations include:
- Limits on the number of shareholders the company may have. Shareholders also must be U.S. citizens or residents.
- Owners must report their share of the company’s losses or profits on their personal tax returns.
When a business owner needs flexibility regarding the owners’ and employees’ salaries and with regard to determining an accounting method, an S corporation might be the best option for him or her.
With a partnership, more than one party owns the company. Each party’s role is determined in their contract. This type of company is generally fairly easy to create and does not require the owners to file with the state to create their company. In a partnership, the owners report the company’s profits and losses on their personal tax returns and are personally liable for any lawsuits against the business.
Limited Liability Companies
A limited liability company (LLC) is neither a corporation nor a partnership. Instead, it combines elements of both to create a business entity wherein the company’s taxes are filed through a partnership or the sole owner’s individual taxes. Other characteristics of LLCs include:
- No limit to the number of owners.
- Independent legal structures, separate from their owners.
- Governed by operating agreements.
LLCs generally have the fewest obligations for business owners.
Business Attorneys in Winter Park
If you are considering incorporating your business, contact Hornsby Law Group at 407-499-8887 today to discuss it with one of our firm’s experienced Florida business attorneys. We can provide guidance for you and your business as you determine the best way to proceed with your incorporation.