Corporation Tax And Liability Protections
Business Legal Structures
When starting or purchasing an existing business, you need to decide how the business will be organized for taxes and who will be responsible for liabilities. If you decide to keep ownership to yourself, you may form a sole proprietorship or a partnership. These businesses maintain you as the owner(s), making you personally responsible for taxes and any liability of the company, including possible court judgments. This puts your personal assets at risk besides the business. Or you may want to form a Limited Liability Company (LLC) or a corporation (type C or S) These other business forms change tax structure and limit the liability of the business to business assets. Your personal assets are protected. Each form of business has its advantages and disadvantages.
Legal structures can be complex to set up depending on ownership needs. You may want to consult with a lawyer or legal adviser to get started with your protections for liability for taxes and legal issues. For your help with business and corporate asset protection, you may want to check out a few companies offering expertise in this area.
What Are LLCs
Tax-wise, an LLC is similar to an S corporation because it is a pass-through business entity with income and expenses reported on the personal tax return of its members, or owners. The LLC may also opt to be taxed as a corporation if it meets IRS qualification. It is best to discuss this with a tax adviser.
LLC’s are similar in structure to a partnership with multiple owners. Liability-wise each member of a partnership is liable for the company debts and legal considerations. In an LLC, each ownership member is protected by legal structure similar to a corporation. Ownership interest and liability is protected by the legal structure of the business entity.
Types Of Corporations
LLCs and corporations are legal entities filed with the state. A corporation is legally considered as a separate legal person in many respects. By its very nature, it may legally act on its own accord governed by the rules set forth by its Articles of Incorporation and bylaws. The corporation is guided by the officers and Board of Directors chosen by shareholders according to rules established at its creation or by legal amendment. The corporation, as a separate legally recognized entity by the state where it is formed, owns the business assets and all its property. It may buy, sell, borrow, employ, enter into legally binding contracts, and act as a legal ‘person.’
For-profit corporations may be the best business structure for your company if you seek capital infusion or investment loans, desire flexible ownership interests, seek to expand by adding additional owners over time, want flexible tax planning, want to easily sell the business or a portion thereof, or want greater management flexibility. A corporation may invest, save, offer entertainment and travel benefits, purchase insurance protections and protect itself with legal representation without affecting the bottom line of owners, also known as shareholders.
For additional articles and information on protecting your business view here. You will find a bounty of help for your tax and liability planning. Once you decide to incorporate you, need to decide how you want to be designated by the IRS. You will decide to be recognized as an S Corporation or a C Corporation. Larger businesses often opt for a C Corporation tax rating. Income, or profits after expenses, are taxed as personal corporate income. Dividends are then paid to shareholders as the owners of the company. Small business often takes advantage of an S Corporation ranking. With this tax filing status, income and expenses are passed through to the shareholders to be included on their personal tax returns. The S Corporation pays no tax. There are restrictions for subchapter S filings based on number and types of shares and stock classes.
Other Considerations: State Selection
Many individuals choose to incorporate or form an LLC in their state of residence. You are not required to register in your own state, however. Different states may offer advantages to filing within their state. Experts can help you determine the advantages and disadvantages of the best state to file your legal corporate entity. You may want to consider which state is right for you by weighing any potential benefits and drawbacks.
