If you happen to be a sole proprietor, you may consider incorporating your small business. There are a number of reasons why today’s small businesses have turned to incorporation. It’s challenging for a sole proprietor to increase capital since they don’t have any company shares to sell. At the same, it’s also difficult for banks to finance their small business.
Taxes are a big concern for owners running a small business since they’ll be required to keep up with the federal tax rate and self-employment taxes. In other words, you’ll be taxed twice (Depending on the structure of your business). One of the biggest risks when it comes to sole proprietors is the never ending liability they’ll end up with if their business is facing a lawsuit. This can place your assets and finances at risk. It’s through these reasons that owners of small businesses need to learn the aspects of incorporation.
If you intend to incorporate, there are small business solutions that involve internet-based incorporation. Currently, there are a number of such online services offering necessary information to help you attain the right kind of incorporation adequate for your small business needs.
When you’re thinking about incorporating, there are multiple options available. You may opt the Limited Liability Company structure (LLP), an S-Corporation or C-Corporation (S-Corp or C-Corp), or a non-profit model format. Through these structures, there are forms that need to be filled out and fees to cover in any state where you’ll be doing your business.
An LLC basically combines the upsides of being a sole proprietor with liability and tax protection that come with business incorporation. An LLC can consist of a single owner with other branches made up of a board of directors. Through this format, you’ll typically make self-employment tax payments on earnings you make out your current business. There are no shareholder meetings involved and keeping records is simpler compared to other incorporated business models.
Business owners often go for the C-Corporation model. Through this format, you’ll be required to select a board of directors and make shareholders in charge of making major business considerations. Meanwhile, the board of directors is in charge of managing the company on a daily basis. You can sell company stocks to shareholders — a good way to raise money for business ventures and operations — and you can minimize worker benefits from your current tax obligation. C-Corps typically have annual meetings with minutes being recorded. This model works ideally for bigger companies.
An S-Corporation is essentially named after a Subchapter S code of the tax laws from the IRS. A business owner/shareholder can hand over corporate earnings and business profits on his personal tax return. Employees in an S-Corp tend to receive acceptable compensation standards. Dividends of an S-Corp are needed for distribution to shareholders according the number of shares they’ve possessed.