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Archive for the ‘S-Corp’ Category

Incorporating a Business? What You Need to Know to Ensure Your Limited Liability Protection

Posted on January 20th, 2012 by Joey Donovan Guido
Category: How To Information, Incorporate a Business, LLC, S-Corp, Small Business

Limited-Liability-Protection

When you’re incorporating your business, whether it’s a Limited Liability Company (LLC), S corporation (S corp), or another business formation, there are at least two things you’ll need to do to properly set up your company.

Filing incorporation documents within the state you’re doing business in is critical. Even if you choose to incorporate in Delaware because of the many business advantages it offers, you’ll still need to incorporate in the actual state you’re physically doing business — often referred to as your home state. If you have multiple states where you have a physical presence, you’ll need to incorporate in each of them. Incorporating in any state other than your home state is called Foreign Qualification.

Once incorporation documents are filed, many small business owners think they’re done. This is not the case. It’s true that your company is officially formed, but if you want to ensure that your limited liability protection remains intact, you’ll have to conduct business in a certain way.

Obtaining an Employer Identification Number (EIN)
The key next step is setting up a bank account, but in order to do this you have to file a form with the IRS to attain an Employer Identification Number (EIN). This Federal Tax ID number is what will enable you to open up a bank account in the name of your company (or its DBA name). It’s very important that your business transactions are kept separate from your personal bank account.

Clients and customers will need to make payments to the business, or DBA name, and all funds should be deposited in the business account. If there’s a hazy middle ground where checks are being made out to you and deposited into your personal checking account, this may compromise your limited liability protection.

What is Limited Liability Protection?
One of the major benefits of incorporating, limited liability protection protects a business owner against being held personally responsible for their company’s debts and liabilities. With limited liability protection, creditors cannot pursue the personal assets (home, savings, etc.) of the business owner to pay off business debts.

We’re Here to Help
If you have questions, or would like assistance with incorporating your company, feel free to give our customer service team a call between 8am and 7pm CST, at 800-981-7183. Or, send us an e-mail anytime. We’re always happy to help.

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Top Ten Questions to Consider when Incorporating

Posted on January 18th, 2012 by Joey Donovan Guido
Category: Entrepreneur, Grow a Business, Incorporate a Business, Incorporation, LLC, S-Corp

TopTenQuestionsToConsiderWhenIncorporating Ready to take your sole proprietorship or small business to the next level? Forming an LLC or an S corp may be the way to go.

To follow are ten questions to help you determine if either of these options is the right choice. Keep in mind that there are other formation options, including Nonprofit and C corp, which may better suit your company’s needs.

  1. Are you looking for Limited Liability Protection?
    One of the major benefits of incorporating, Limited Liability Protection means that business owners are typically not personally responsible for business debts and liabilities. LLCs and S corps both provide Limited Liability Protection.
  2. Are you looking for pass-through taxation?
    With pass-through taxation, no income taxes are paid at the business level. In a nutshell, business profit or loss is passed-through to owners’ personal tax returns. Any necessary tax is reported and paid at the individual level. Both LLCs and S corps are typically pass-through tax entities.
  3. Are you looking for an unlimited number of members, or a limited amount?
    LLCs are able to have an unlimited number of members, while S corps can have no more than 100 shareholders (owners).
  4. Will all of your members be U.S. citizens?
    Non-U.S. citizens/residents can be members of LLCs, but S corps are not permitted to have non-U.S. citizens/residents as shareholders.
  5. What kinds of ongoing formalities is your company prepared to meet?
    It’s important to understand that S corporations face more extensive internal formalities. On the other hand, LLCs are recommended — but not required — to follow internal formalities. Some required S corp formalities include adopting bylaws, issuing stock, as well as holding initial and annual director and shareholder meetings. Recommended formalities for LLCs include adopting an operating agreement, as well as holding and documenting annual member meetings. What is required of LLCs is the issuing membership shares (units).
  6. What are your management preferences?
  7. LLCs can choose to have members (owners) or managers manage the LLC. When members manage an LLC, it’s similar to a partnership. When managers run an LLC, it more closely resembles a corporation. In other words, members will not be involved in the daily business decisions. S corps have directors and officers. There’s a board of directors that oversees corporate affairs and handles major decisions — but not daily operations. With S corps, directors typically elect officers who in turn manage daily business affairs.
  8. Is there a chance you might want to one day transfer ownership?
    S corp stock is freely transferable, as long as IRS ownership restrictions are met. LLC membership interest (ownership) typically is not freely transferable. In most cases, it must be approved by other members of the LLC.
  9. How do you feel about self-employment taxes?
    S corps may have preferable self-employment taxes compared to an LLC. This is true because an S corp owner can be treated as an employee and paid a reasonable salary. FICA taxes are withheld and paid on that amount. Corporate earnings after payment of the salary may be able to be treated as unearned income that is not subject to self-employment taxes. Click here for more on self-employment taxes.
  10. What are your future ownership plans?
    When it comes to S corps there are restrictions on ownership. They cannot be owned by C corporations, other S corporations, LLCs, partnerships or many trusts. LLCs do not have these restrictions.

We’re Here to Help

If you have questions, or would like our assistance with forming your company, feel free to give our customer service team a call between 8am and 7pm CST, at 800-981-7183. Or, send us an e-mail anytime. You can also utilize our free Incorporation Wizard to help define which business type suits you best.

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Time is Running Out to Win a Free Incorporation Package from BizFilings!

Posted on December 22nd, 2011 by Joey Donovan Guido
Category: Entrepreneur, Form My Business, Incorporate a Business, LLC, S-Corp, Small Business News

FreeIncorporationPackageFromBizFilingsIt’s not too late to enter our Small Business Love Sweepstakes! BizFilings is giving away one free incorporation package per week through December 31st …

If you’re a sole proprietor, entrepreneur or small business owner who’s ready to form an LLC or S corp, our sweepstakes is a great opportunity to kick off the new year in a positive way. Winners will enjoy the limited liability protection and potential tax benefits that go along with forming an LLC or S corp.

How to Enter
Go to BizFilings Facebook page, like us, and fill out a brief sweepstakes form. That’s it, you’re done! Enter the sweepstakes once per week to increase your chances of winning.

Additional Info on Business Formation
Have questions regarding the different formation types? Visit the Incorporation Options page on our Website for more info. You can also download our Free Guide to Incorporating Your Business, which offers in-depth insight regarding the different types of business entities, where to incorporate, ongoing compliance requirements and more.

We’re Here to Help
Feel free to give our Incorporation Specialists a call between 8am and 7pm CST, at 800-981-7183. Or , send us an e-mail anytime.

Happy holidays, and good luck!

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Win a Free Incorporation Package from BizFilings!

Posted on November 1st, 2011 by Joey Donovan Guido
Category: Entrepreneur, Incorporate a Business, LLC, S-Corp, Small Business, Small Business News, Start A Business

BizFilingsSmallBusinessLoveSweepstakes

BizFilings Small Business Love Sweepstakes

Are you an entrepreneur or small business owner interested in taking your company to the next level? Whether you’re looking for limited liability protection, or the tax benefits some business formations offer, BizFilings is here to help by giving away a free incorporation package every week through December 31, 2011.

How to Enter
Go to BizFilings Facebook page, like us, and fill out a brief sweepstakes form. That’s it, you’re done! Enter the sweepstakes once per week to increase your chances of winning.

Additional Info on Business Formation
Have questions regarding the different formation types?  Visit the Incorporation Options page on our Website for more info. You can also download our Free Guide to Incorporating Your Business, which offers in-depth insight regarding the different types of business entities, where to incorporate, ongoing compliance requirements and more.

At BizFilings, we’re dedicated to providing all of our customers with outstanding service at an affordable price. We wish you the best of luck in the sweepstakes, and with your small business!

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A Few Notes On Incorporating a Sole Proprietorship

Posted on June 8th, 2011 by The BizFilings Team
Category: Incorporate a Business, LLC, S-Corp

Most entrepreneurs start companies as sole proprietorships, which is essentially a default business entity. This filing status is a sensible option for solo professionals such as freelance photographers, graphic designers and contractors.

However, as a business grows and begins to take on more employees, finances, customers and general business responsibilities, owners will need to protect themselves from the threat of legal and financial liabilities.

Proprietors in a general partnership also run the threat of being liable for debts incurred from lawsuits, as such statuses are seen as indistinct from individuals under the law.

Not only can incorporating a businesses with an S corporation or LLC status help protect proprietors’ personal assets, it can also alleviate tax burdens, in certain circumstances.

“Owners of Subchapter S Corporations, a common format for professional service businesses such as accountants, attorneys or physicians, can receive compensation in the form of dividend distributions,” points out Marla Brill for Reuters Wealth. “Such distributions aren’t subject to Social Security tax, which is 10.4 percent of the first $106,800 in wages this year and 12.4 percent in 2012.”

For more on the advantages and disadvantages of incorporating visit the BizFilings Learning Center.

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Why Are You Paying Employment Taxes on Your Investment Income?

Posted on April 5th, 2011 by John L Duoba
Category: Cash Flow, How To Information, Incorporate a Business, S-Corp, Start A Business, Taxes

Form an S corp to lower unemployment taxes Being a small business owner requires the wearing of many hats. As the lead employee of the company, you must produce for today (creating products/services, managing employees, dealing with vendors and customers, etc.) and for tomorrow (strategic planning, raising capital, forging partnerships). And for all of these efforts, you receive monetary compensation.

But there is another role you serve for your business, separate of traditional employment: You are an investor. And part of the annual compensation you take home is tied to your investment in the company. Yet, many business owners still classify virtually all of their compensation as employment income, not investment income.

And for this oversight, those very business owners are penalizing themselves by paying higher taxes than required by law.

Lower your employment taxes.

 As outlined in the article, “Operating as an S Corporation Can Lower Your Taxes,” you can legally split your take-home income among salary and dividends. By doing so, you shield the dividend payment portion from payroll taxes assessed on both the employee (you) and the employer (your company)—a more than 15 percent tax savings. Examples in the article illustrate this savings.

But it gets even better. . .

Dividends, for regular corporations, are not deductible expenses. So these dividends are considered corporate income subject to corporate taxes (as high as 35 percent), and then to individual dividend tax rates for the recipient. This is often referred to as “double taxation.”

But if you organize your business as an S corporation, these dividends are not exposed to double taxation, just the individual income tax. S corporations are considered pass-through entities for tax purposes, meaning that all earnings pass directly to the owners and are reported on their tax returns.

Form an S corporation, save money.

The key to this money-saving strategy is forming and electing S corporation status for your business.

To get started: You would need to form a regular corporation in the state of your choosing. Then you would need to elect S corporation status with the federal government, filing paperwork with the IRS to allow usage of simplified, pass-through taxation. Be sure to talk with your professional business advisor, lawyer or accountant when considering this options. You can also choose to use an incorporation services provider to help you with these business filings.

Liability protections save money, too.

Obviously, choosing an entity type for your business requires assessing many considerations. And taxation is certainly one of them—but it is only one. The unique circumstances of your business may dictate a different entity choice. If you plan to “go public” with your business, a regular corporation may be best; if you hope to pass along the company to your family members someday, maybe an LLC would be the choice.

There are no hard-and-fast rules about which form to choose. Some of it may rely on your particular comfort level and how you want to run your business. Just be sure to educate yourself on all of your options and to discuss them with a trusted advisor or professional.

And don’t forget: All three formal entity types mentioned above offer limited liability for its owners—your personal assets are protected from business debts. And these types of protections are hard to put a value on, especially when they are needed.

About the author
John L. Duoba is the publisher and managing editor of Business Owner’s Toolkit at www.toolkit.com, and while he is not a fan of double taxation, he has a soft spot for double-cheeseburgers.

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New Year May Mean Time to Incorporate

Posted on January 4th, 2011 by The BizFilings Team
Category: C-Corporation, Corporation, Grow a Business, Incorporate a Business, Incorporation, LLC, S-Corp, Small Business

As 2011 gets under way, borrowing among the country’s small businesses is up, unemployment is expected to fall slightly for December, consumer spending is increasing and manufacturing activity is accelerating.

Accordingly, small businesses need to ask themselves a few questions: Is it time to start hiring? Should the marketing budget be expanded? If so, when? Should the company begin a more proactive social media presence? Is it time to get incorporated? If so, does the business need a registered agent service? What about corporation vs. LLC?

If small businesses begin to receive greater access to capital and outside investors – as they are expected to, thanks to initiatives such as the recently enacted Small Business Lending Fund – then it is important for owners to protect their personal assets through a business entity such as an S Corp, LLC, C Corp or other classification.

“The end of the year is a great time to think about the administration of your business,” Charley Moore, founder and CEO of Rocket Lawyer, told Inc. magazine. “Think about your corporate structure and consider if incorporating at this time will give you a new year of different tax treatment, or protect your company as it goes into a new phase.”

Determining what entity suits your small business is dependent on a number of factors including growth rate, investment, size of staff and assets – both liquid and illiquid. Owners should consult legal or filing experts to determine if the time is right to form an LLC or corporation.

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Deciding on a Business Entity Classification

Posted on November 30th, 2010 by The BizFilings Team
Category: C-Corporation, Corporation, Grow a Business, Incorporate a Business, Incorporation, LLC, S-Corp, Small Business, Start A Business, Work For Myself

Forming a company requires an idea, but once the idea is translated into a legitimate business entity of forming an LLC or incorporating a business, challenges arise and decisions need to be made.

According to the World Bank, the U.S. ranks eighth in the world for ease in registering a new business, behind Australia, New Zealand, Singapore and others, averaging a span of six steps and six days to become legitimate. China and Brazil, on the other hand, impose some of the most challenging bureaucratic obstacles to incorporating a business, with an average 37 and 120 day process in China and Brazil, respectively.

The U.S. business registration process is not the most efficient one, but it is certainly above average. Most entrepreneurs are intimidated by the process of choosing a business entity. Limited liability companies (LLC), corporations and S corporations are a few examples of business entities, but they all serve the basic function of protecting an individual proprietor or owner from legal or financial debts.

“The decision is more complicated than it may seem: What the government leaves in one pocket, it takes from another,” writes Inc. magazine. “So sit down with a lawyer and accountant to weigh the options in light of your individual tax situation.”

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LLC Elects S Corp Status — The Best of Both Worlds?

Posted on April 29th, 2010 by Joey
Category: Incorporate a Business, Incorporation, LLC, S-Corp

So you are ready to start a small business, eh? You have a wonderful vision for a unique new service or special product. Your business plan is a work of art. You are ready to cast off from the safety and security of your cubicle at the office and blaze a new trail of entrepreneurship. Congratulations!

Now, as you start, run and grow your new business, how do you intend to structure it so that it becomes an efficiently operating, thriving enterprise? Two of the most popular organizational forms today are the limited liability company (LLC) and the S corporation. But what if I told you that you could have the best of both worlds, so to speak, by establishing an LLC and then electing to be treated like an S corporation for tax purposes? Well, it can be done.

Business owners–even attorneys and accountants–often get twisted up in the debate over which is best, the LLC or the S corporation. But it’s not necessarily an either/or proposition. Rather, you can set up an LLC and, after setting it up, you can elect to have the LLC treated as an S corporation. If your LLC operates an active trade or business, and payroll taxes (SECA taxes) on the owner or owners are high, you may find that an S corporation election is the best choice.

Both organizational forms share the characteristic of “passing-through” their income to the owner(s). Both also provide their owner(s) limited liability protection. But each has some distinguishing features, too. You, as a new business owner, will want to consider the differences as you choose the form for your enterprise.

  • An LLC beats an S corporation for ease of operation and administration.
  • An LLC beats an S corportation for profit-sharing flexibility.
  • An S corporation beats a typical LLC for flexibility in paying its earnings to owners as either earned income in the form of salaries and wages or passive income in the form of distributions.
  • An S corporation beats an LLC for various tax planning purposes.

To learn more about the features of an LLC and the features of an S Corp, read the rest of this article at Toolkit.

BizFilings would like to thank guest blogger and Toolkit staff writer, Robert Steere, for his contribution. Robert has served as general counsel for a state tax department, as tax policy director for a state chamber of commerce, and as a tax specialist for two major CPA firms during his 30-year professional career. Bob holds a BS degree from Michigan State University and a JD degree from University of Michigan Law School.

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Corporation or LLC?

Posted on April 1st, 2010 by Heather
Category: C-Corporation, Incorporate a Business, LLC, S-Corp

Perhaps the most common advice a new small business owner hears is to incorporate. There are advantages as well as complications. But even if you decide to go ahead with incorporation, that’s only the first of many choices you’ll need to make. The next step is deciding whether to form a corporation or a limited liability company, or LLC.

The two are similar in many ways. Both are legally a bit like individuals. It’s as if you’ve given birth – suddenly there’s this new entity with rights of its own. Like that new baby, the new entity is NOT equivalent to you, and you’ll get yourself in hot water if you pretend otherwise. Even if you are the only employee, writing a check for Billy’s braces out of the company account is just like writing it out of your next door neighbor’s checkbook.

So long as you are in compliance with state law, both types offer full limited liability to all of the owners of the business in every state. But neither a corporation nor an LLC will protect you in the event of your own malpractice or malfeasance. In both cases, you’ll want business insurance to protect yourself.

Neither will take on your own personal debts—nice try—but in most states and industries, both will protect your personal assets in cases such as legal malfeasance by an employee.

So if they’re similar in all those ways, how are they different? Most of it comes down to the way they’re treated at tax time.

An LLC is a pass-through type of business. Profits and losses of the organization go straight through to the owners. Business income equals personal income, so the owner pays the tax on his or her personal return, and it’s taxed at the individual rate.

Corporations are separate businesses entities with profits and losses taxable to themselves, not to the owners. As a result, corporations are taxed at the corporate rate.

LLCs are generally simpler in structure and in reporting requirements, but in some circumstances, proprietors can earn a substantially increased tax bill through the addition of the self-employment tax, currently at a painful 15.3 percent.

In some situations, corporations can bring their own tax headaches. As mentioned above, the corporation is taxed on its profits, but the owner is also taxed on any dividends and salary from the company. It’s a double tax, and it can seriously cut into the real dollars earned in the end.

This is the beginning, not the end, of a branching tree of decisions. Your attorney or tax accountant can help you find the right path to making your entrepreneurial dream a reality.

See additonal info in our Learning center on both:
Starting an LLC
Starting a corporation

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