If you're opening a small company and have 1-3 employees whats the best to do: incorporation or limited liability company. This is for internet business in united states. Also why you think one is better than the other? Advantages and Disadvantages of each one? Thanks guys!
A LLC is treated as a partnership or S corp for tax purposes. So if you don't have a partner, might as well go the s corp route and skip the LLC altogether. If you need to incorporate or not is another question. There is one solid reason to form an S Corporation. Payroll taxes. If you are a sole proprietorship, all profits are taxed, this is income tax and self employment tax (that's 15% just for the SE). With an S Corp you pay yourself a wage like an employee. This includes paying the SE on those wages. This has to be a realistic wage. This does incur the hassle of having to complete payroll taxes etc, but you have employees already so its not that big a deal. The benefit comes when its time to pay the income taxes. As a s corp, the profit of the s corp are taxable for income tax but the SE tax is not applied. Basic math, means you could save 1,000's if the profits are high enough. As to questions about which is right for liability etc. Consult a lawyer. Ditto for the tax benefits, seek out a CPA.
Thanks for the info! Main purpose would be for taxes. I got screwed last two years and paid the self employement taxes that were really high. The company will be just me, my wife, and maybe another person but not sure yet. So if i just wanted to take my online business and make it into a company would i rather go with s corp?
Short answer, yes. I have seen the setup I described above work and it is totally legit. It does have some expenses involved. Those I mentioned, hours for payroll, S Corp fees etc. But the benefit can outweigh the costs.Also consider the fact if you and your wife are employees, both of you will get the Social Security benefit (if there is any by the time you retire, another rant though). LLC's have become a fad. Or a hot topic a lawyer or CPA can push as being "new" and having great benefits. Most cases, it boils down to being an S Corp with a different name. LLCs are meant for partnerships or co-op situations where liability is being spread amongst a group of people. Its use for a single guy/girl, doing business isn't going to help more than being an S Corp and the cost isn't going to be lower. Both are corporations, both requires hiring a lawyer or producing the documentation yourself. Both pay fees etc. And here's an example of one situation a LLC would be useful. Imagine a clinic with 5 doctors' offices. Each doctor has his own little corporation with insurance etc to protect his practice. Problem arises is what happens if someone gets hurt in the lobby on the way to their doctor's office? Who pays? The LLC covers this type of deal. The doctors would form an LLC and the LLC would seek insurance for the common areas. Each of the doctors pays a share of the expenses etc. And the LLC would protect each doctor from being sought out in court.
shallow, you are partially right, but some of your info is incorrect OP do your research it depends on the state your in In florida, LLCs are cheaper to set up AND RENEW, and they have less requirements set upon it by the state from a paperwork perspective also consider a LLFP Limited Liability Family Partnership since its you and your wife Other things to consider...are you going to seek investors? there is a big difference in shareholders in a Corp and Partners in a LLC also will you be offering profit sharing or similar to employees lots to consider...but whethor or not to incorporate is not one of them...def incorporate, which way to go is going to depend. If neither your wife or you has a "regular" job, you might consider a C corp believe it or not....you just need to get the right information concerning your STATE as well as how IRS will treat your situation federally. in some states an LLC between spouses is not valid and automatically reverted to a Sub S Tax breaks for C, Sub S and LLC are all different for things like health coverage and retirement plans and insurance...check into them ultimately, you need to speak with an attorney or CPA as your situation will be unique
Thanks for the info. I called my CPA but he was out of the office so tomorrow i will talk to him and he will explain what i should do. Thanks for everyone's inputs and info!
LLC in florida is the way to go, ZERO liability to debt BY LAW (thank you FL!) if the company fails. Keep it to one owner, it's taxed as a single person.. Keep it under $400 per year and you don't have to file...
I prefer LLC's because of the flexibility. As an LLC in many states you can file taxes as a corporation or as a Sole depending on what suites your needs at the time. The best part is that you aren't required to keep minutes and all of the techincal stuf that's required with a corporation. And an S-Corp is a corporation by name.
many people think that a corporation or LLC is automatic protection from a lawsuit it is NOT the wording of contracts, how you sign and also secondary documentation are all necessary to keep you from personal liability. Many in corporations get SUCCESSFULLY sued because they did not understand this.