If you are starting a new business venture, it is important to set it up in the legal entity that will be most beneficial to you. Each type of entity has its pros and cons, so you should investigate and educate yourself regarding each of your options. We can review your business plan and discuss your goals for your business and help you determine which legal structure is most advantageous for you. The three most common forms of legal entities include:
- Limited Liability Company (LLC). Many start-up companies choose the LLC structure for their business because it allows the members to jointly own and manage the company. The members share in the profits/losses and can take advantage of pass-through tax treatment. It is important to confer with a tax advisor regarding the tax treatment in your individual situation, but the LLC often offers numerous benefits. Finally, the LLC structure protects the owner’s personal assets from debt collection and/or judgments against the LLC, except in certain circumstances such as where fraud or misrepresentation has occurred.
- C-Corporation (C-Corp). The C-Corp legal structure can be a complex and costly business entity, but it offers numerous important advantages. It is taxed separately and often falls in a tax-bracket that is lower than individual tax rates. The owners of a C-Corp are only responsible for paying taxes on profits received from the entity. If you are considering fundraising for your business, a C-Corp allows you to sell shares in your entity and create differing classes of stock.
- S-Corporation (S-Corp). The S-Corp is similar to the C-Corp in many ways, but it is usually chosen for the way its taxes are treated. The S-Corp is a pass-through entity, allowing the business’s profits and losses to flow directly to the shareholders. The S-Corp is limited to 100 investors, all of which must be individuals and legal residents of the United States.
The above is a quick summary of a few of the available business structures. There are other factors that should be considered, as well as other entity types that may be better-suited to your needs. If you need assistance selecting a legal entity for your start-up company, contact The Swenson Law Firm to schedule your initial consultation. Call us at 916-333-0833.