I currently have a sole proprietorship that is expanding tremendously . I don't have any partners and don't really intend to have any at this time , but I do intend to hire many employees / contractors and just operate on a larger scale . I'm trying to decide whether an LL or a corporation ( not sure which type . . . please suggest ) I should select . Thanks
It really depends upon numerous factors, which includes your business purpose and long-term goals. LLC's are generally seen as easier to maintain and carry liability protection. However, sole member LLC's are disregarded by the IRS and your federal tax treatment will fall back to your sole proprietor status unless you make another election.
Corporations also offer liability protection, and generally have a few more requirements, but it's not overly onerous. Subchapter-S corporations are treated as pass-through entities and are not subject to corporate tax. In other words, it passes through to the stockholder who pays th tax based on their personal income.
Subchapter-C corporations have to pay their own taxes. Then, when you make a dividend, it is taxed again. However, C-corporations can have really good long-term tax benefits if you hold the stock for more than 5-years.
In short, like I said, it totally depends on your situation. You should sit with an attorney to choose the best entity for you.
An LLC is great for smaller closely held companies (ie - small # of founders). LLCs are owned by the Members and are managed by the members or a designated manager. It is a very flexible form of business entity and provides a personal liability shield for the founder(s) provided that they maintain corporate decorum and do not misuse the corporate structure (ie you can't use it for something illegal and expect to be shielded from personal liability). LLCs also have certain tax advantages, namely pass through taxation, but you will have to contact an accountant to discuss that in more detail.
A Corporation is owned by its shareholders and is managed by the Officers and Directors. It is a good entity type for companies that are looking to raise money (venture capital) and that anticipate offering its securities (stock) for sale.
From what it sounds like an LLC would be something to look at, but I always think when it comes to incorporation of an entity that you should talk it over with an experienced lawyer who can help you pick out the right entity, help you with your initial formation and governance documents (LLC Operating Agreement or Corporation Bylaws, for example), and help you structure your initial contracts for employees, vendors, etc.
I would contact a corporate attorney in the Dallas area and discuss the matter further with them.
A single-shareholder S corporation and a single-member LLC have comparable advantages, and either of these would help you achieve your business goals, one of the most important of which is limited liability for business activities. That said, they do differ, and each has some advantage over the other:
LLC - A single-member LLC may make tax reporting and filing easier for you, more in line with a sole proprietorship. Also, if you ever admit additional members, you will find the LLC form much more flexible than a corporation in terms of allocating gains and losses to each member. And an important reason why LLCs are now favored over corporations in certain tax-minimization restructurings, is that the IRS has largely succeeded in closing such loopholes with respect to the old corporate forms, but has not yet done so in the case of the newer LLC form.
Corporation - On the other hand, if you are seeking venture capital or angel financing for your venture, there is still a comfort level and preference for the corporate form (though this may finally be changing). And most rank-and-file citizens (believe they) understand the long-established corporate form, something which is NOT generally true of the newer LLC form (or even more exotic and confusing forms such as the statutory Limited Liability Partnership, etc.).
Most small businesses find LLC's to be the easiest form of entity to form, operate and maintain. The best for of entity for you depends on your personal circumstances, including the nature of your business and your plans for its growth. LLC's are by nature a creature of contract rather than just formed by statute, so there are a lot of choices that need to be made regarding how you operate. In essence, you get to make most of the rules with respect to the running of your LLC, and those rules are contained in your LLC's Company Agreement. I'd be happy to assist you in creatng the best entity for your particular business.
The decision of whether to form a corporation or a limited liability company can be impacted by several considerations including future ownership, tax consequences and compliance costs. I recommend that you consult with an experienced business attorney who can help you determine the best entity to meet your needs.
Congratulations on your growing business. Establishing the corporate entity best suited to your needs involves several complex and variable legal issues which are poorly suited to online discussion. I strongly urge you to consult with an experienced business attorney to discuss the safest and most effective way to achieve your objectives while protecting your business and assets. My firm would be happy to assist you. You can contact me at WFB@BroemerLaw.com.
You should form a limited liability company in Delaware. Then you should register it with the Texas Secretary of State as a foreign entity qualified to do business in the State of Texas. For federal income tax purposes you may continue to report as a sole proprietorship. But the savvier move would be to elect to be taxed as an "S" corporation.
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