In the past, incorporating a business has often been thought of as a complicated process, only to be handled by qualified legal council. But, with the advent of the internet, it no longer has to be that way. Why pay thousands to have a lawyer fill out forms that you can easily do yourself? If you’re a do it yourselfer like myself you can find everything you need on the web and set up your corporation today.
The downside, of course, is that you won’t be provided with live legal or financial advice. Most, if not all, of your answers, however, can be found with a little bit of research online or via books. If you need legal advice you should always consult an attorney. Chances are that you’re perfectly capable of filling out the online legal forms yourself, through one of the incorporating services featured online.
You can check out the corporate entity table pros and cons and some popular online business incorporating services:
MyCorporation, an Intuit Company
If you’re looking for more detail, there are many good books available today that can guide you through the entire incorporation process. Here are a few:
Ultimate Guide to Incorporating in Any State
Inc. Yourself: How to Profit by Setting up Your Own Corporation
Whether you’re setting up your corporation for a small or large business there are three popular business structures. Depending on your specific business needs, a C Corporation, S Corporation, or Limited Liability Company (LLC) may be right for you. Below are some pros and cons of the different corporation types:
Corporate fringe benefits: Offer the most fringe benefits of all the structures. 100% deductions for health and disability insurance. Full deduction for medical expenses that may exceed existing coverage. Stock options offering capital gains, favorable life insurance, cafeteria plans, pension plans, supper allowance, and more.
Increased workload and paperwork: Yearly stockholder meetings to elect Board of Directors members. Yearly Board meetings to elect officers and approve corporate issues. Additionally, you need to keep corporate minutes.
Most expensive to operate: Must file two separate tax returns, one for the corporation, and one for you, the individual. A few states, like California, have special corporate taxes, which can significantly add to the tax costs. Double taxation is possible if plans aren’t structured well in advance, increasing costs.
No double taxation: Unlike the C corporation, income and losses flow through to the owners.
Social Security reductions: You can save up to 50% of your Social Security and Medicare
taxes. These benefits have made the S corporation a popular choice. The S corp is especially beneficial if you’re income is under the Social Security maximum of $102,000 (2008).
Limits on qualifying: Fewer than 75 stockholders, all stock must be U.S. owned, must be a domestic corporation formed in the U.S., and only one class of stock.
Corporate bookkeeping: Much like the C corporation above, S corporations are classified as corporations and must have annual meetings. Board of Directors meetings, corporate minutes, stockholder meetings, along with a separate corporate bank account are required.
Limited Liability Company (LLC)
Cheaper to start and operate than corporations: One of the most popular choices for new and small businesses. No Board of Directors meetings, corporate minutes, or stockholder meetings. Typically provide more accounting flexibility than either C or S corporations.
Best asset protection: Limits liability for debts and other obligations much like a corporation. In fact, limited liability corporations offer protection that may exceed that of a corporation.
Limited restrictions: Unlike the S corporation there are no limits to the numbers of members, stockholders, or foreign investors.
Real Estate: The best entity to hold real estate of the three. The gains within the LLC are taxed at the more favorable capital gains tax rate. All C corporation gains are taxed at the corporate tax level, which can be quite high. S corporations have their disadvantages as well.
No Social Security Savings: Don’t share this benefit with S corporations. Subject to Social Security much like a sole proprietorship. Not a big deal for those who plan on making over the $102,000 (2008) Social Security maximum.
Required paperwork: Must file articles of organization with the state the LLC was formed in. The most simple of the three, however. Some states may require LLC specific taxes. This may prove disadvantageous, depending on your state.
All the above come with their pros and cons. Based on your unique business situation one of the above business entities may make more sense than the other. If you value flexibility and ease of operation, an LLC may be the right choice. If you want to take advantage of the social security savings, an S corporation might be appropriate. A C corporation may be more suitable for larger companies, and so forth. Incorporating your business, whether big or small, can have significant tax and liability protection advantages. Once you decide on incorporating or forming an LLC, you can get started rather easily thanks to the large number of online resources.