Understanding Ownership and Business Entity Structures 4
1 | 2 | 3 | 4 | 5 |
How old do you have to be to incorporate?
The minimum age ranges from 18 to 21 depending on the state.
Can I start a corporation with only one person?
Most states allow you to start a corporation with only one shareholder.
When is it a good idea to incorporate?
A good accountant who is used to dealing with small business tax matters can advise you whether or not to incorporate. In general, he or she should help you evaluate whether business growth or other individual business circumstances indicate that incorporating is likely to benefit you by doing any of these things:
- cut your tax bill
- give you better fringe benefits
- increase the amount of money you can put tax-free into your pension plan
- protect your personal assets if your employees cause your company to
- be sued
- make your company appear bigger than it is
- allow you to retain money in the corporation to meet some specific need
- allow for smooth transfer of ownership
- make it possible to expand the business by bringing in investors
I’ve heard it's a good idea to incorporate in Delaware, because of tax breaks and other benefits. Is this true?
As a small business with just a few shareholder-employees, the easiest and best place to incorporate is usually within your own state. Although Delaware may offer some tax breaks and potentially more statutory protection from liability for corporate directors than your own state, for a small corporation the advantages are likely to be outweighed by the disadvantages. For instance, you will have to appoint someone in Delaware to be an agent for your corporation (there are companies in Delaware that do this); you will have to pay an annual franchise (corporate) tax to the state of Delaware; and if you incorporate in Delaware but do business in another state (the state where you live, for instance), you will have to file an application in your home state to do business as a foreign corporation and will then have to pay a franchise fee as well as income taxes in your home state.
What will it cost to incorporate in my own state?
The actual fees charged to incorporate may be anywhere from under $50 to a few hundred dollars, depending on what state you live in. Attorney's fees, if you use an attorney to incorporate your business, can run from $400 or $500 to close to $1,000 or more depending on where you are located and how much work the attorney has to do for you. There are also a number of websites that offer incorporation services for a fee.
Should I incorporate to get investors?
If you have people who want to invest, incorporation is one way to set things up so they might be able to get their money out later. (A limited partnership might also accomplish your goal.) But incorporating won't automatically bring you investors.
What kinds of corporations are there?
There are two basic forms of corporations: regular corporations (called C corporations) and S corporations (formerly called subchapter S corporations). Small corporations often organize under the S format. Another term associated with corporations is "close" or "closed" (or sometimes, "closely held"). This refers to a corporation that is owned by a few private individuals rather than having its shares available to the general public.
What's the difference between C corporations and S corporations?
The main difference that is of concern to small businesses is the way profits and losses are handled. In a regular corporation the profits are taxed to the corporation and losses absorbed by it. In an S corporation, profits and losses are passed through to the shareholder and taxed at the shareholder's tax rate.
Which type is best?
The answer depends on the individual circumstances of your business. If the shareholder's personal tax rate is lower than the corporate tax rate, an S corporation may be preferable. Businesses subject to the alternative minimum tax may find the regular corporate status preferable since the alternate minimum rate is lower for corporations than for individuals.
What types of businesses does the IRS consider personal service corporations?
Corporations offering services primarily in the fields of accounting, actuarial science, architecture, engineering, health, law, the performing arts, and consulting are considered personal service corporations. Writers, artists, and sales agents do not fall into this classification.
1 | 2 | 3 | 4 | 5 | |
