Incorporation Wizard Tool: Decide on a Type of Corporation

Which business type might be right for you?
Answer questions across all 6 categories for best results.

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  1. Basics
  2. Funding
  3. Industry
  4. Income
  5. Taxes
  6. Future Plans
  7. Results

1. Basics

How many owners will your company have?

Why is this important?

The partnership business types must have 2 or more owners, and S corporations cannot have more than 100 owners. Answering "One" would eliminate LP or LLP, while answering "Over 100" would eliminate S corporation. Additionally, the number of owners an LLC has dictates whether it is treated like a sole proprietorship or a partnership for tax purposes.

Will any of the following be owners of your company?

Why is this important?

For certain business types, such as sole proprietorship and S corporation, owners must be individuals. With S corporations, owners must also be US citizens/residents. An answer other than "None of the above" would eliminate S corporation.

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2. Funding

How will you finance your business? (select all that apply)

Why is this important?

Some lenders/investors prefer that companies they fund be a certain business type. Banks often require a business to be formalized (incorporated) and venture capitalist tend to lend mostly to C corporations.

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3. Industry

Is your business industry vulnerable to lawsuits?

Why is this important?

Certain industries are more prone to lawsuits than others. For example, a general contractor in the construction industry is at greater risk for a lawsuit than a graphic designer.

Does your industry require a state license? (such as a doctor, attorney, accountant, architect, etc.)

Why is this important?

Most states require that businesses being organized to provide professional services form as limited liability partnerships, professional corporations or professional limited liability companies. Answering "Yes" to this question eliminates LP as an option.

Will the primary purpose of your business be to own real estate for investment?

Why is this important?

Investment property owners often choose a formal business structure for each property. Certain business types, such as the LLC, are typically the leading choice for realty investors.

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4. Income

What kind of income do you expect your business to earn? (select all that apply)

Why is this important?

Tax treatment of business income can be a leading factor in selecting a business type. Estimating your company's revenue/profitability can help in this choice.  To further discuss the tax implication a certain entity type will have, you may wish to contact your accountant.

Do any of the following apply to your business situation? (select all that apply)

Why is this important?

Owners' personal situations can also influence the choice of business type. The situations outlined in this question tend to favor the C corporation. Indicating that you prefer to have a tax year end-date that is not December 31 will eliminate LP and LLP from consideration, as those entity types report taxes based on a calendar year ending December 31.

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5. Taxes

Do you want pass-through taxation?
(No income paid at the business level, profits/losses reported on owners' personal tax return and any tax due on business income paid at the individual level)

Why is this important?

Pass-through taxation creates a situation where the business entity is not taxed. An answer of "Yes" to this question would eliminate C corp as an option, as taxes do exist at the entity level for C corporations.

Do you want to minimize self-employment taxes?

Why is this important?

While a good topic to discuss with an accountant or tax advisor, corporations may offer more favorable treatment of self-employment taxes.

Which employee benefits would you like to offer? (select all that apply)

Why is this important?

The employee/fringe benefits the company offers may have tax benefits, and C corporations tend to incur the most benefits. It’s always good to discuss your particular situation with an account or tax advisor.

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6. Future Plans

Do you want to minimize ongoing recordkeeping requirements?

Why is this important?

Corporations are required to follow multiple, ongoing "formalities," such a holding and properly documenting annual meetings of directors and shareholders, in order to maintain the limited liability protection provided to owners. Other business types do not face the same stringent recordkeeping requirements.

What are your long-term business goals? (select all that apply)

Why is this important?

While not always a consideration when business owners are starting a business, your exit strategy or desired outcome for your business can influence your choice of business type. Wanting to sell your business for a profit would eliminate the partnership options. Wanting to be publicly traded would require formation as a C corp.

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Results

Based on your answers, LLC may be best.

This result does not substitute for the advice of an attorney and/or accountant familiar with your unique circumstances.

Limited Liability Company

Advantages of an LLC

  • Owners (members) are typically not personally responsible for business debts and liabilities.
  • LLCs allow for pass-through taxation.
  • There are no restrictions on number of owners or who can be owners.
  • Owners have flexibility in structuring company management.
Incorporate Now as a LLC Learn More About LLC

More research to consider

S Corporation

Advantages of an S Corporation

  • Owners (shareholders) are typically not personally responsible for business debts and liabilities.
  • S corporations allow for pass-through taxation.
  • S corporations may have self-employment tax savings over LLCs.
  • Capital can be more easily raised through sale of stock (as long as IRS guidelines are met).
Incorporate Now as a S Corp Learn More About S Corp

More research to consider

Based on yours answers These May Be Right For You
C Corp Details
S Corp Details
LLC Details
Details LP
LLP Details

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