There are four main disadvantages of incorporation: Increased cost, increased paperwork, increased liability, and reduced flexibility. Consulting with a business tax professional before starting is a good idea. You must file articles of incorporation and craft company bylaws.
Understanding the different corporation types is important and how they impact operations. These include liability protections, tax statuses, and federal income taxes. An LLC protects your personal assets if sued.
Despite the ease of LLCs, corporations have advantages. S corporations are pass-through entities where owners pay taxes on profits/losses. C corporations pay taxes separately from owners through corporate income tax and allow profits to remain within the company, paying shareholders dividends. They can also issue shares to raise funds for expansion.
To incorporate, contact your secretary of state for instructions, forms, and fees. You can file without a lawyer by using books/software, saving $500-$1000 in lawyer fees. The disadvantage is the process may take time, and you risk missing important details.
Key decisions in starting a business include taxation, control, cost, and liability issues. This article unpacks features and pros/cons of major business types to help you decide.
- Corporations separate from owners
- Pass-through filing with owners’ taxes
Limited liability means owners aren’t personally responsible for debts/liabilities. If working alone without liability concerns, you may not need an entity. LegalNature can help with necessary legal forms.
An experienced business lawyer can help choose a structure by identifying business features and factors and can prepare legal documentation and filings to ensure you make the right choice conforming to state laws.
Incorporation comes with benefits like liability protection. It is a suitable choice for those wishing to protect personal assets, especially if open to the public or employing staff. An LLC is apt for small family businesses or sole proprietors, offering a straightforward tax structure and protection.