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To receive some liability protection you can choose between two types of entities to form.  You could also choose to remain a sole proprietorship (i.e. unlimited personal liability exposure) but most business owners today want some liability protection.  The two choices are:

1.Corporation

2.Limited Liability Company (LLC)

Already know the type of company you desire? - Click here to continue
     
Corporation
Limited Liability Company (LLC)
Some Big Advantages:
  • Limits personal liability
  • Ownership, control issues &  profit sharing are clear
  • Can cut taxes
  • Offers various levels of family / co-owner participation
  • Limits personal liability
  • Flexibility to change profit sharing & ownership easily
  • Can cut taxes
  • No annual minutes required
In general, many professionals recommend LLCs for owning real estate or a small new startup with just one owner.  If you will have partners or plan to have investors or other family members join you now or later, then the corporation is fairly easy to administer, and the rights of majority and minority stockholders are well established under each state's laws.
 
Before we get started in putting together your company formation kit, let's review a couple basic tax strategies.  You have three types of tax status you can elect for your new company.  The federal tax status has nothing to do with your choice of the two forms of state organization (incorporation or LLC formation).  Corporations can choose either the S or C tax status.  LLCs can choose any of the three tax categories below.  The tax statuses are:
 
  Sole Proprietorship / Partnership S-Corporation C-Corporation
Good for deducting losses without limitations
Can deduct some losses personally
Cuts self-employment / payroll taxes
Easy to take cash
Can load up on tax-advantaged benefits for owners
 

Since most small business owners need the cash from profits to live on, the vast majority of them are set up as S-corporations.    If you are setting up a company to be owned just by you alone and you expect to have a loss the first year or two in business (which is very common, especially after depreciating equipment and furniture) then you may want to form a LLC and register it with the IRS as a sole proprietorship for tax purposes (although you will still get the limited liability advantages by forming an LLC).  Then when you start to make a profit, you can switch the LLC status to an S-corp. status to cut your self-employment tax.   Many states charge more for annual renewal of the LLC, so if you expect to have a profit from the first year or if you will have other owners in the business, then the corporation would probably be a better choice for you.

Incidentally, our incorporation kits include all the forms you need to form the company with your state, be accepted to do business in other states (if you choose this option),  "fill in the blanks" suggested minutes for the required initial meetings to properly organize your company, all federal and state tax registrations, the S-election form (and for LLCs the Entity Election form), and related instructions.  We also provide something nobody else does at this low price.  We've included registration for all federal and state sales, payroll, and other business taxes plus exemption forms, payroll posters, and every other tax-related form you need to get started!  Its like getting all the startup help of both a CPA and attorney at a very low cost!

 

Now that you understand the basics, let's get on to selecting the type of company you want to form.

Click here to select company type

 
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