Why Do I need To Incorporate?
There are several reasons to incorporate a business. The most notable reasons are:
1. Reduce personal liability – The owner of a corporation cannot be held personally responsible for the debts of the company. The owner’s personal assets are shielded from liability.
2.Tax Advantages – The income of an S corp is not taxed separately and an LLC has a reduced self-employed tax. There are also greater deductions available to corporations vs. individuals.
3.Credibility – A corporation communicates structure and credibility. Many individuals and businesses look for a corporation to do business with rather then an individual.
4.Transfer of ownership – A corporation is transferable therefore can continue if you would like to pass it on or if you pass away.
What Is The Difference Between An S Corp And An LLC?
An S corp and LLC differ in a few ways. An S corp is a corporation and therefore must file a separate tax return, whereas an LLC does not need to file a separate return. An S corp is also limited to 100 shareholders and they must be US citizens or residents, an LLC does not have this limitation.
In most cases, an LLC is more expensive to setup and all profit is subject to both income and self-employment tax an S corp is not subject to the self-employed tax. While an S corp’s profit is not subject to self-employment taxes, shareholders who do the work must have payroll through the corporation. An LLC does not have stocks therefore it is governed by ownership agreements, this allows for income to be distributed as they see fit.
What Type Of Corporation Should I Setup?
This depends on the business structure you are building. Most individuals will either setup an S corp or LLC. A basic business startup is typically done as an S corporation. If you are in need of investors or not a US citizen/resident, then you will need to setup an LLC.
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