Picking the Right Legal Structure for Your Business

Most businesses should consider incorporating as an LLC or an S corp. When your business is incorporated, your personal assets and your business assets are separated. If your business runs into difficulties, your personal assets will be protected, and you wouldn’t lose your savings, your home or your car. All you stand to lose is the money you invest into the business directly.

When you incorporate, you will also be able to deduct expenses. This includes travel, computers, phone bills, professional services, and other costs that you incur in the course of running your business. By claiming expenses, you will be able to lower your tax liability and get a true picture of the underlying profits generated by your business.

There are advantages to starting S corps, and there are advantages to starting LLCs. Both will protect your personal assets, and let you claim expenses, but both work in different ways.

According to Rocket Lawyer, most businesses incorporate as an LLC. Here are some of the main reasons why people choose this structure:

• Less paperwork. You spend less time worrying about the law, and you can spend more time focused on your business. Because there are less compliance requirements, you typically spend less on legal and accounting fees.

• If you’re running a single-member LLC, you can report your company’s earnings through your personal tax return. This makes life much simpler.

• Set-up fees are low for an LLC. The cost is much higher to form an S corp.

While an LLC is easier to set up and manage, many businesses still decide to set up an S corp instead. The name S corp is used because the relevant tax laws are contained in Subchapter S of Chapter 1 of the Internal Revenue Code. Here are some of the main reasons why people set up S corps:

• When are going to take investment, an S corp is a much more appealing option. You will be able to sell stock directly, which isn’t possible with an LLC.

• An S corp has much more stringent reporting requirements. This provides security to investors and lets them know that you’re managing the business properly. If you are the sole shareholder in the business, the stringent reporting requirements could become burdensome.

• An S corp prepares your business for future growth. It would be very difficult and impractical to run a large business, with hundreds of shareholders, as an LLC. If you run a small business with ambitious plans for the future, you could set up an S corp, take on more paperwork today, but feel ready for the future.

Before you incorporate, speak with a lawyer and find the structure that they recommend for your business. Nowadays there are many lawyers posting videos on YouTube. It’s a way for them to show their expertise, and it lets you get a sense of their personality before you meet. For example, when I was looking for a personal injury lawyer, I was able to come across James Cupero. Have a look around on YouTube, Twitter or Facebook and find someone that your friends seem to like. Otherwise, a Google search should do the trick.