If your small business is doing well you may want to consider incorporating it in order to avail of the multitude of benefits corporations enjoy. Setting up a corporation takes a lot of time and effort. In previous times, you would need a qualified attorney to help you incorporate your small business, but now you can find online websites that offer special incorporating resources, it can be done with reasonable cost and ease. When setting up a corporation you need careful guidance, knowing how to submit the correct forms to the right agencies. However, one of your more difficult choices would be choosing what would be the most suitable entity for your business.
These corporations are more suited to small-scale business operations. An S-corporation must have fewer than 75 stockholders, stocks must be US-owned, it can only offer one class of stock, and the corporation can only be domestic. Additionally, if the company accumulates debt, the debt is passed on to the owner; it will not be considered a separate entity, unlike with a C-corporation. The business has to hold stockholder and board of directors meetings annually and keep corporate minutes of the meetings.
One of the best benefits of S-corporations is the self-employment tax benefit. In an S-corporation you can save as much as 50% on Social Security Taxes and Medicare. It also does not pay corporate tax therefore you avoid double-taxation, which C-corporations experience. The income distributed to its shareholders will be taxed on an individual basis.
C-Corporations are suitable for large-scale business operations. They are more complicated to operate over S-corporations. Requirements of upholding a C-corporation include holding annual stockholders meetings, board of directors meetings, and keeping track of the minutes of these meetings. Record keeping for C-corporations is complex and the corporate structure is very expensive to operate. You have to file a tax return for the company and one for your personal self. Depending on which state you are operating in, there may be additional taxes.
Despite all these setbacks C-corporations have just as many benefits. They are allowed full deductions for disability and health insurance, including medical expenses beyond existing coverage. They also have benefits such as life insurance, pension plans, and dinner allowances.
When deciding whether to incorporate as a legal S-corporation or a C-corporation you must take your future plans into account too. Do you plan on expanding interstate? Do you want to go international? Which tax and fringe benefits are more suitable for your business? The tax structures and restrictions on shareholder equity can make a huge impact on the profitability of your business. You will need to analyze if the change will be worth it.
If you need assistance in determining in which type of corporation you would like to confirm you can consult an experienced lawyer to help you with your decision-making. An excellent lawyer can help you maximize the potential of your business by determining which benefits are most suited to your business and help you with all the paperwork you need to get your business incorporated. Consult your local business attorney today!