Business Entity Formation
Many people are unsure on which business entity to choose. This is very common as there are several factors to take in to account when choosing a business entity. Different business entities serve different purposes. Making sure you select the correct business entity for your special goals and needs is great benefit to you and your business.
Selecting the correct business entity for your specific needs and goals can provide the essential protection from personal liability and maximize your tax benefits.
Many individuals make the error of not selecting the correct business entity to meet their goals and needs. What is an ideal choice for one business may not be the correct choice for another. Each client is unique and based on your business needs and tax structure we can help in advising you in the correct business entity for you.
Common forms of business entities are listed below:
- C-Corporation: A C-corporation is very common and standard formation. The C-Corporation offers personal liability protection from business liabilities and debts, but must follow certain corporate procedures and formalities.
- S-Corporation: An S-corporation is defined in Subchapter S of the Internal Revenue Code. S-corporations are very similar to C-Corporations, but are taxed liked sole-proprietorships and partnerships where the business entity does not pay tax on any profits. S-Corporations are very common for professional corporations like a medical practice. S-corporations can only have up to 100 shareholders. Each shareholder must be a lawful U.S. resident and various other restrictions that we can advise you on.
- Limited Liability Company (LLC): A limited liability company operates under state law. Usually, members of the LLC have personal liability protection from business liabilities and debts like a corporation. There is more flexibility in the distribution of profits in an LLC than a corporation. LLC’s are taxed like sole proprietorships and partnerships but can be taxed like a corporation if desired.
- Partnership: Partnerships are easier to form and manage, as they involve few or no reporting requirements. The partners are personally liable for business liabilities and dents. The partnership business entity does not pay tax on profits. The partners pay tax on the profit based on their share of the profits which would be listed on their personal tax return.
- Non-Profit Corporations: Non-Profit Corporations can be exempt from all taxes and can have donations paid to them as tax deductible contributions from the person/entity giving the donation under section 501(c)(3)of the Internal Revenue Code based on the non-profit having a charitable purpose. Two types of non-profit corporations are:
- Public benefit, such as school or charity.
- Mutual benefit, such as a club.
At the Jain Law Firm, we have substantial experience in entity formation and advising you as to the best business form for your specific needs.