Business Formation Strategy

Building a Strong Foundation

Business Formation Strategy

Sole Proprietorship/Partnership

Advantages

  • Simple to Form
  • Register the business name via a DBA if using a name different than your own.
  • If your business name is your own name, you don’t need a DBA.
  • Simple to Maintain – No financial statements or lengthy paperwork to stay compliant.
  • Simple to Tax – Income earned by the business is considered income earned by the owner. Track income and expenses and report on Schedule C with a personal tax return.

Disadvantages

  • No Separation of Personal and Business Assets
  • Sole Proprietorship owners are personally liable for any debts of the business.
  • High risk of personal assets in the case of a lawsuit.
Use of Personal Information

Sole Proprietorship owners generally have to sign contracts and paperwork in their own name because the business does not have a separate identity under the law.

No Business Credit

Sole Proprietorships cannot gain business credit, take out business loans, or raise capital in other ways.

C Corporation

Advantages
  • Asset Protection – A “C Corporation” provides the most personal liability protection for shareholders in a company.
  • Growth Potential – A “C Corporation” has more potential to raise capital and grow. It can issue multiple classes of stock, and it may have an unlimited number of shareholders.
  • Longevity – Unlike with a sole proprietorship (and in the case of some LLCs), a “C Corporation” will survive beyond its owners’ life spans.
Disadvantages
  • Cost and Complexity – A “C Corporation” has more compliance requirements and costs more to register than other business entity types.
  • Double Taxation – Generally, “C Corporations” are subject to double taxation – when profits distributed to shareholders as dividends are taxed again at the individual tax rate on shareholders’ tax returns.

S Corporation

 Advantages
  • Tax Savings – An LLC or a Corporation that chooses an S Corp election will have its profits and losses flow through to its shareholders (owners), who then report them on their personal income tax returns. Not all income is subject to self-employment taxes—only owners’ salaries are.
  • Asset Protection – Because the S Corporation is an election of an LLC or C Corporation, it is considered a legal entity separate from its owners creating protection for personal assets.

Disadvantages
  • Limitations – If your business is a C Corporation choosing to be treated as an S Corp, you may only have up to 100 shareholders, and you can issue just one class of stock.
  • Cost and Complexity – If your business is an LLC choosing to be treated as an S Corp, you may experience higher formation costs and more compliance complexity.

Limited Liability Company

Advantages
  • Easy to Form and Manage – Less formation paperwork and ongoing compliance requirements. No need to create a board of directors, create annual reports or hold annual shareholders meetings.
  • Asset Protection – When you form an LLC, you legally separate your personal self from your business creating a level of protection for personal assets.
  • Tax Flexibility – LLC’s can opt to have taxes treated as an S-Corporation or have business profits pass through to personal federal income tax return which can lower your personal income tax obligation.
  • Professional Credibility – Forming an LLC can help instill confidence and trust in the eyes of customers, prospects, vendors, and the business community when they see the “LLC” following your company name.
Disadvantages
  • Possible Confusion Over Roles – If your LLC has multiple members, you may clash over who should be doing what and who is authorized to make certain decisions.
  • Self-employment Tax – If you don’t select S-Corporation tax treatment, all LLC profits will flow to your personal income tax return and get hit with the social security and Medicare taxes. Depending on your situation, that could result in more tax than if you’d be taxed as a corporation.
  • Challenge to Grow – LLCs don’t sell stock. With no shareholders as a source for generating funds, you may find it challenging to grow your business as quickly or to the degree, you’d like.
Our Expertise

We Provide Great Solutions

  • Enterprise Solutions at Small Business Prices
  • Ongoing Support & Access to Project Management
  • Corporate Compliance, Trademarking, & Restructuring Solutions Available
Trademark Preparation Services

Intellectual Property Protection

Trademark Applications Ready in 48 Hours

  • The trademark registration process can require 9 months to several years of processing at the Federal government (USPTO) depending on the complexity of your desired mark and other existing conflicting marks.
  • However, Corpnet can prepare your application within 48 hours. After you receive your completed application, you will be responsible for executing the application and for paying any applicable Federal fees.
  • Once you execute the application, it is filed with the USPTO (United States Patent and Trademark Office). The earlier this “filing date”, the better.