You may have waited years to start your new business, and now, your dream is about to come true. But even though this is an exciting time, you may lay awake at night thinking, what if my business has a bad year? What will happen to my shareholders? What if I can't pay my taxes? Will the IRS come after me? There's really no need to lose sleep and toss and turn awake worrying. When starting a business, a little bit of smart planning goes a long way. An excellent professional accountant like Daleyn Accountancy can help you learn about the options that are available for setting up your business. We'll help you choose an option that is right for your business size, profit goals, and type of shareholders.
Advantages of Incorporation
Any business of any size or type can become a corporation, and there are many advantages to doing so. Incorporation of a business is simply a legal process by which the company is set up with a particular legal definition so that it is taxed a certain way and regulated by specific types of rules. Incorporation begins by drafting the "articles of incorporation," which define the business's purpose, number of shares, location and type.
By incorporating, a business owner can benefit from the advantages that becoming a corporation brings. One of these advantages is the protection of the assets of the owners or shareholders against the business's debts and liabilities. Another advantage is that corporations are taxed at a lower rate than personal income. In addition, a corporation can raise capital for its business operation through the sale of stock to shareholders. Also, if ownership is ever to be transferred to another party, it's easier to do this if your business is incorporated.
Types of Entities
There are a few different types of entities, there may be some similarities between some, but they differ in the regulations for taxation and a few other issues. A C corporation is a standard corporation that allows business tax deductions, and that protects the owner’s assets from the company's liabilities and the stocks are publicly traded. A closely held corporation is a C corporation whose number of stockholders is limited but the stocks are still public traded, while a privately owned corporation is one in which the stocks are never publicly traded nor sold.
An S corporation is one that avoids the "double taxation" of C corporations. In double taxation, federal income tax is paid at the corporate level, and the shareholders must pay taxes on the dividend income earned as well. In an S corporation, the profits are only taxed once as it is a pass-through entity. The disadvantages here are that there are restrictions on S corporations, as to who can be a shareholder and the number of shareholders allowed.
A limited liability company or LLC, though still a pass-through entity is a less formal entity, it can elect to be taxed as an S corporation, avoiding the double taxation. Otherwise, it will either be taxed as a SMLLC, (Single Member LLC) if it only has one member, which is a disregarded entity for federal tax purposes, or as a partnership if there are more than one member at the tax rates of the owners. However, one main disadvantage of an LLC is that all income will be taxed as self-employment income.
Call to Schedule a Free Consultation with a Professional Accountant Today
If you're interested in learning more about incorporation, call to schedule a free consultation with a professional accountant today. At Daleyn Accountancy, our professional Certified Public Accountants can tell you more about incorporation and all its advantages and help you choose the option that's right for you. Call us at 818-696-0866 and let us help you get your business off to a good start. We serve Encino, Los Angeles, Thousand Oaks, Camarillo, Agoura Hills, Woodland Hills, Calabasas and surrounding communities.