I would prefer a S Corporation for my business S corporation has some appealing tax benefits and still provides business owners with the liability protection of a corporation. With an S corporation, income and losses are passed through to shareholders and included on their individual tax returns. As a result, there's just one level of federal tax to pay. And also the owner of S corporations who don't have inventory can use the cash method of accounting, which is simpler than the accrual method. Under this method, income is taxable when received and expenses are deductible when paid.
But it also has some cons like S corporations can only issue common stock and S corporation stock can only be owned by individuals, estates and certain types of trusts. In addition they're subject to many of the same requirements corporations must follow, and that means higher legal and tax service costs. They also must file articles of incorporation, hold directors and shareholders meetings, keep corporate minutes, and allow shareholders to vote on major corporate decisions
I think this question depends heavily on the business being started. In my case, I have an interest in medicine and would probably open a clinic as an LLC. As an LLC, my company would be separate from my personal liability, and there would be a benefit in terms of taxation when compared with an Inc. or corporate classification. LLCs also allow me to grow my business with the help of other professionals and I would be able to pass on the business to the next generation of operators. If the business were to grow dramatically, I would consider making the switch to a Inc. and going public. However, this would be a drastic and costly step, and would not be the first step of my business venture.
If I were to start my own corporation, I would start a Limited Liability Partnership. One of the main reasons I would choose this is because of the autonomy provided by this corporation structure. Also all profits will directly come into the hands of my partner and me. Also the tax code for such a company is simple to follow and we can avoid any complications. Some drawbacks to this set up is the potential for disputes between me and my partner. Also my personal money and assets would be at stake if we were to go into debt. However, each type of business has a potential upside.
As many have mentioned, it highly depends on what type of business you are trying to conduct.
If I was creating a tech start up I would most likely go the route of an LLC. With an LLC it will be relatively cheap and easy to set up. As stated in the lecture videos, the members divide the ownership percentage and because the LLC is not taxed as an entity, the members will get taxed according to that percentage of ownership. The advantage here is that in the early stages of a startup you will most likely be losing money (business cost, operation cost, overhead, employee payments). That loss you take can be applied to your personal tax return. If you don't take an income in the early stages of the start up you can apply that loss to future income which in turn will adjust your gross income (income before deductions are taken out) and this can lead to a tax refund. If you are going down the C-Corp route the company is an entity and all income is therefore taxed. The disadvantage of being an LLC for a startup would be the lack of shares being available to shareholders. Therefore, if you are looking for outside investors and venture capitalist to dish out money for your startup, which is huge for moving start ups forward, then this is a big disadvantage. To mitigate this I suppose, I would try to switch from an LLC to a C-Corp at some point. Also, depending on what state the start up is under, the cost of starting an LLC can be very hefty.
The biggest decision in all this is really not the taxes and complexity of starting a company but how much liability you as an owner or partner want to take. Many people are risk adverse and low risk low reward and some people are risk takers and want high risk high reward. I would consider that, above all else, before deciding what time of corporation you want to be.
I would prefer being a partner in a corporation where I hold certain percents of their shares. Because at least that way I don't have to worry about losing my money while working in a company. I think its too much tension when you have to worry about making money through solary and also worry about your company.
Personally, I prefer Partnership. There are so many advantages of the partnership. The basic is that there are two heads or more are better than one. We can decide together, but not a dictatorship. My business will be easier to establish and start-up costs are lower. There will be more capital available for the business,
and have greater borrowing capacity. The high-caliber employees can be made partners. There is an opportunity for income splitting, an advantage of particular importance due to resultant tax savings
partners’ business affairs are private. The last is that it’s easy to change my legal structure later if circumstances change.
I would agree with bb254 in saying that I would also choose a limited liability company (LLC). There would be more flexibility in splitting profits, and also in splitting liabilities. If the company were to come into losses, they could also be shared among owners. The taxes for an LLC are simple in comparison to most other corporations. However, there is a setback of having a lot of book-keeping, especially in the early days of the company.
With the perspective of starting or owning a medical device startup, I would prefer an LLC. The inventor can assign their patents to their LLC. You can do the registration without an attorney, the filing fee for an LLC is only $100. "Once you've registered your LLC with the state, you can get an Employer ID Number (EIN) from the IRS, and get business bank accounts and business checks." Another reason would be to avoid double taxation or having the company and the owner both being taxed. An LLC is also best for a startup is because the owners can protect their personal assets from lawsuits directed at the company. Lastly, when your startup begins to expand and grow, it can easily be converted to an S or C corp depending on the situation.
https://www.inc.com/john-boitnott/5-reasons-why-an-llc-is-the-right-structure-for-your-startup.html
If I had my own device/biotech company, I would do the paperwork to set up a corporation-C corp. The advantages of setting up a corporation were discussed in the lecture; you can sell shares to raise money, you can get loans more easily, limited liability, you can pay dividends, stable when shareholders leave or die. As also discussed there will be a lot of paperwork involved/administrative duties, and double taxation. As opposed to S-Corp, C corporations can have no restrictions on ownership, and C corporations can have multiple classes of stock. So C corps have more flexibility if you plan to grow, and expand the ownership or sell the corporation.
If I were to be an owner of a business, I would want to own a piece of an LLC. A LLC can have multiple owners including corporations. Therefore, the possibilities are endless in addition to being able to sell shares to raise funds; and being able to take out a loan more easily compared to a say sole proprietorship. Also, the tax is passed on to each members tax returns similar to a partnership. This also prevents double taxation because the LLC entity does not get taxed. However, as mentioned above by julienneviuya there are disadvantages to it especially in its early days.
If I were to have ownership of a corporation, I would choose Corporation (S Corp. or C Corp.)
Pros
1. Personal asset protection.
2.There is limited liability for business debts and obligations
3. Tax flexibility on personal income.
Cons
1. Financial disclosure to the public.
2. Involves a lot of paperworks
3. Double Taxation if C-Corporation.
When starting a small business, an LLC is a great model to set up the business. As has been mentioned above, it provides liability protection and more control over the business and its operations. However, as the business grows, corporate entities are preferable for their ability to generate capital investments via shares without surrendering control of the company. However, this does come at the cost of answering to a board of controllers. The corporate entity allows the greatest room for growth which can provide stability and profits.
If I were to own a company, I would choose the C-corp type of ownership. With C-Corps, with the advantage of being taxed like sole ownerships, it allows to re-invest profits at a lower corporate tax rate. Unlike the LLP and most other partnership-based type of corporations, C-Corp does not need to get dissolved in the case of death of a partner or require immediate transfer of ownership or partnership to maintain the status of the company. Most importantly as a non-US citizen or a foreign owner of a C-Corp, another advantage of choosing C-Corp over other corporations is the waiver of filing of U.S. personal income tax returns.
Hi
I would like to be an owner of a LLC for following reasons:
Limited Liability Companies (LLCs) are flexible — you can use them for practically any purpose — and they offer more benefits than any other entity type. They have a favorable pass-through tax status, and with the dual liability protection that LLCs offer, corporations and limited partnerships can’t compare. Following are some good reasons to form an LLC.
TO CUSTOMIZE YOUR SMALL BUSINESS
LLCs are great for small businesses because they’re adaptable to all situations. No matter whether you have 100 silent investors or are a two-person small-business operation, the LLC is so flexible that you can pretty much write the operating agreement to suit your needs; you can make your own rules and tailor your entity to suit the intricacies of your business.
TO PROTECT REAL ESTATE ASSETS
The LLC is a perfect entity for real estate holdings — you just can’t beat it! One advantage is that an LLC has dual liability protection that shields your investments from the frivolous lawsuits filed against people like you every day. So if you rear-end someone in a parking lot and he sues you personally, he can’t seize and liquidate your investment properties to settle the claim if they’re held in an LLC.
TO SHIELD INTELLECTUAL PROPERTY
Unless you have a bunch of important patents, placing all your intellectual property in separate LLCs is overkill. You don’t want your intellectual property to operate with the public; that’s your operating company’s job. So how do you link your intellectual property in your LLC to your operating company?
TO RAISE SEED CAPITAL FOR YOUR BUSINESS
The LLC is quickly becoming the entity of choice for raising seed or angel capital — early-stage investments under $500,000 or so. Whereas venture capital firms generally prefer to invest in corporations because they’re most familiar with them, smaller investors love limited liability companies.
TO PLAN YOUR ESTATE
Don’t overlook the value of the LLC when you plan your estate. Although it’s a simple entity in comparison to some of the über-complex trusts that your attorney may recommend, the LLC provides powerful asset protection. LLCs protect you not only from creditors, but also from probate lawyers and court costs.
They allow you to avoid probate altogether, which means that your estate isn’t subject to the nickel-and-diming that probate attorneys siphon from estates as the court divvies up assets.
TO DO A SHORT-TERM PROJECT
LLCs were made for short-term projects. When these entities were first introduced, they were never supposed to live forever like corporations do. That’s why, when you create your articles of incorporation, you state a specific dissolution date or term, the number of years that the LLC is to be in existence.
TO SEGREGATE ASSETS
Segregating assets is vital in business. By segregating your business assets into individual LLCs, you put them out of the reach of your company’s creditors or people who may want to sue you.
A lot of people incorrectly think that if they’re operating as a corporation or an LLC, then their assets are safe, but that’s not necessarily true. If you’re like most entrepreneurs, your business is your biggest asset. If you lose the ability to operate, you’re doomed.
Your business may be protected from your personal creditors, and you may be protected from your business’s creditors; however, what protects your business from its own creditors? If your LLC gets sued, everything inside it can be seized and liquidated. Even worse, the courts can put a lien on your company and then do an asset freeze, which means that you have zero access to your operating capital — you can’t write checks or receive funds from clients.
TO MINIMIZE YOUR TAX BURDEN
When you first go into business, chances are your company won’t be profitable right away. Building up a business takes time, and in the first year or two, you probably will incur thousands of dollars in losses. A lot of entrepreneurs, eager to soften the financial blow of the startup phase, decide to form an LLC.
With an LLC and its default partnership taxation, the losses of the business flow through to the members so that they can use them as deductions for other income.
TO CHANGE THE PROFIT DISTRIBUTIONS
An LLC’s profits can be paid out disproportionately to the actual ownership percentages, so you and your partners can set up the company so that you receive all the profits and losses — even if you own only 10 percent of the company.
Why would you want to do that? Well, a common reason for changing the distributions is to provide an extra incentive for investors. For example, if one investor contributes all the capital, he gets 50 percent of the company.
However, the profit distributions can be varied so that he receives 100 percent of the profits until his investment has been paid back (plus 10 percent in some cases). Then the profit distributions return to normal, and the profit is split equitably among the members.
TO PROTECT YOUR PERSONAL ASSETS
When you spend your entire life saving for retirement, your children’s education, or even that second home you’ve long dreamed about, nothing is more crippling than losing it all in a lawsuit. If you’re like most people, you currently hold all your personal assets in your own name: your savings account, your cars, and your mutual funds, stocks, and bonds.
If I am the only owner, I would prefer to register an LLC because of low risk and less hassle of the taxes. If the company is product based, and needs more time to focus on production or manufacture than saving time in receiving a loan can benefit the company as one less thing to worry about. This also means more focus on customer and their satisfaction. Another advantage is LLC being easy to register. It helps business a lot since it will be quick start-up.
