Some background info I do business and reside in the United States. I have operated one company as a sole proprietorship and filed taxes as such for the past 3 years. However, the company that I want to form does not (necessarily) do business with that company. The SP is a record label that I have run for the past few years, but I would like to form, probably, a corporation for my internet related endeavors. This would include my hosting company, and the various web sites that generate revenue. So my questions are, Does it matter what I name the corporation? Should I just pick a non-descript name and attach it to the bottom of all the web sites, owned and operated by, etc... is a corporation even the right choice of business entity for me to form for this size/style company. thanks uh
Sounds like you'll want to form an "S" corporation.... An "S" corp is fairly easy to setup and is much more beneficial than the sole propritorship that you have now... As long as you have no paid employees, you can file taxes once at years end...
The main point of a corporation is that it shields you from common types of liability. Depending on your business (and if you are going to employee other people as W-2 workers), you may be better off with a corp. You can also consider a LLC (limited liability company), which is an alternative to a regular corporation. S-Corp's are corporations like any other, but with subchapter-S election. This is a tax benefit only. The rest of the benefits of the corp are the same (i.e., as with "C-Corp's", the other kind of corp.) I've personally gone from a sole-prop to a corporation (twice), and FWIW, a corporation carries with it alot of extra paperwork. Even if you're the only employee (or, you have no employees and "pay yourself" as a 1099/contractor), there are still both state and fed forms to file. Nearly everyone I know who has been in your situation has been somewhat surprised at the extra cr*p they had to deal with once setting up the corp. Anyways, not to deter you. Again, it really depends on what you are going to do for business. Also, if you are running multiple "lines of business" (i.e., a record label and a travel agency), then you really ought to have separate business entities. The best course of action if you're serious is to talk with an attorney. Yes, you can incorporate yourself without a lawyer, but in the long run my opinion is that you'll save time, money and aggravation by getting solid legal advice and doing it right the first time. HTH, and N.B. IANAL. LC
It is possible to form an LLC with only one person? I may be confusing it with an LLP. Anyways, the entity that I am forming is for all internet related businesses. The record label will remain a sole proprietorship.
LLC is different from LLP (the latter is used primarily by professional organizations like legal, financial advisor and accounting firms.) LC
If you are the only employee using an LLC is pretty simple. All profits / losses will be treated as personal. If you have an employee then it begins to get complicated. I operate under an LLC and outsource most of the functions of the business. Taxes are pretty simple. Your best option is to spend a few bucks on a CPA and get some professional advice on which way you should go. A few hundred dollars now will pay off in spades in the future. -jay
When you say a few bucks, approximately what does it cost to just have a CPA advise you on how to set things up?
The cost depends on a lot of things. If you use an accountant now for tax preparation they will probably do it for cheap. If you're going to establish a long term relationship with a CPA (such as taxes, quarterly filings, payroll, book keeping etc. etc. ) they may advise you for free on the initial consultation. They can also help you with the paperwork and registrations with the Sec. of State/Div. of Corp., your state's Dept. of Revenue, the IRS and all the other blood suckers that are in the food chain. If you're going to use the CPA as a one-time consultant you're probably going to pay $75-$200 / hour and the amount of time depends on how much you ask them to do. Clear as mud right? Hope this helps!
You'll need to talk to a CPA. It also depends on where you live, the amount of revenue you are talking about, and what the purpose of the coporation is. Are you looking at a corporation to shield you from liability? Some states have a minimum tax even if you don't make any money. I believe California charges 1.5% of the net or $800, whichever is greater. So even if you have a $1,000 loss, you still must pay $800. The accounting costs are also greater for a corporation and you must operate it as a corporation - keeping corporate minutes and keeping personal funds separate from the corporations, etc. If you don't run it like a corporation, you can lose the liability protection by having the corporate veil pierced.
The cost is going to vary based on (a) how you incorporate (DIY vs. hiring an accountant/attorney, who could in theory charge $250-$1500 for the job), and (b) what state you incorporate in (there's an incorporation fee for each state, some are more than others, but probably $100-$1000 encompasses the whole range). Again, there are speciality companies that focus exclusively on getting you incorporated in as little as 24 hours. Just Google for "corporation" or "incorporate". I haven't used any of the speciality companies... I've set up two corps over the last 10 years and both were through attorney/CPA firms. I might add that I originally researched this with the mind to DIY, but ultimately ended up hiring a firm to do it. HTH LC
Sorry, under advisement of several accountants, I made this mistake too, this is a misconception. A corporation always has employees (the officers at an extreme minimum), therefore as soon as it generates profits and those profits are released(in an S corp that is instantly), people must be paid. So now you have paid employees, which will require quarterly paperwork filing. When you pay yourself as a 1099, you are not an employee therefore you are bypassing unemployment taxes, and states, and fed gets mad when you try and bypass paying taxes. I've been lectured many times about this by paid advisers. So, when a corporation can only have unpaid employees, is when its not making money, and in that case why have it. Seek the advice of a professional tax adviser, what I said is only what I've been told (since I am not an accountant, and each state has different rules), which greatly suggests you too professional advice. Especially if you are considering what tax entity you are picking. tom
It depends on what your plans are for your company. If you plan on always passing on all profits to yourself and not having any employees then it would be easier to form an LLC and not really beneficial to form an S corop. If you plan on growing the company (employee wise) and leaving some money in the com pany then look into doing the S Corp.
Is it possible to create a parent LLC (non-operating?) and follow with forming subsidiary LLC's to that parent? e.g., form a parent LLC related to digital content/management and follow by creating subsidiaries to the parent that actually function actively as a business (digital photography, digital asset mgmt consulting, etc.). Apologies for general ignorance here - I can't seem to procure a direct answer to this potential anywhere; any help/advice would be greatly appreciated! Further, if this is possible, how does the parent llc need to be structured/incorporated? what tax implications might this scenario create? THX!
You can have an LLC with one or more people. LLP means Limited Liability Partnership and as stated before is usually used by firms such as law and accountants. An LLC with only one person is treated like a Sole Prop for tax purposes, the income passes through the same way. The main difference is the liability aspect. You wouldn't have any tax benefits, but you would be (somewhat) protected.
Sounds very familiar to advice some hand out for using G's AdSense for major income. Let me water down what was told and the advantages: Form a company, and have that company own mini-companies so each and everyone can be focused to different niches, and should 'click-fraud' happen, you don't have all your eggs in one basket. What I did is chat with tax advisors to find advantages to this idea. If you plan on having closely related companies, all doing G's AS, then this isn't a bad idea. Since you will have your AS income spread over several companies with different EIN's. Where the problem lies is this. Money and liability. If Company A owns Company B, C, D then Company B, C, D are assets of company A. I know just keep following me. If Company B does something liable, like misrepresents itself, then the liability passes right up to Company A. In a lawsuit all of Company A's assets are on the line. So all you companies can be hit. This is due to there is no veil of isolation from one company to it's parent company, even if it's incorporated, LLP, or LLC. So, you can spend much money, and have no legal returns. Here are the advantages, like I said in the special case where PPC advertisement is your thing, and you want to look 'separate' to G-AS or YPN by getting different EIN's, then it seems OK, per what I learned, if you do it right. Form a INC, or LLC, and have that parent company form smaller Sole Proprietors. The tax implementations seem the same regardless of their tax intenties, and SP's are easier to form($), and maintain($), and it's the minium for getting an EIN. So now you have some isolation between you sites/companies, and you can prevent getting caught by 'click fraud'. NOTE: Many people here say taking such steps are unnecessary if you are doing this structure for Y or G's PPC systems. Many say if you are a bad businessperson, no matter what you do, you are doomed. Now disadvantages. This comes from a man who was in lititigation. He was inc'd, then his inc own a training school company, and rental properties. All under his parent company. A tenant at a rental went up a ladder and fell. The man was hurt, and later died. He was troubled that many of his properties where under the same company that same properties company. He later found that since that property company was owned by his main company, liability passed up, and since his main company owned all his companies, all were on the chopping block. Even his training company. Also, this was a wake up call since each an every company with a seperate EIN, had to file seperate tax papers, and to the goverment were seperate. If any were full incorporations, they had to pay taxes prior passing any profits 'upward' to finally himself that paided all final taxes. Tax lialbites were passed up, while each company still was liable for paperwork, which resulted in time and money. So, after all this very, very, very winded post, I would sit down and first ask, WHY? Why would you want one company own several smaller companies? I see the advantage, but even the big-boys split up companies into separate, isolated companies, example, Pepsi-Cola and Pepsi-Cola Bottling. Once you have a reason, then you need to sit down with a business person see if the why is good. Then sit down with a tax professional and ask how it can be done. Side Note: I've incorporated 4 times, each time I sat down to chat with business people, prior to going to a tax adviser[which I highly recommend], to see if the WHY was important enough to get to the HOW phase. Once you get to the HOW phase make sure you are business minded, if not any liablity protection you build will fail in front of a good lawyer. Good customer service, and business skills are your first line of defense, that's why I meet so many successful SP tradespeople who would never think about forming an LLC or an INC. hth, tom <= Not a lawyer, not an accountant, just a average "Joe 24 Pack"