If you specialize in providing intangible deliverables (like graphic design, writing, consulting, legal services), you may be wondering what business structure best suits your needs. It really boils down to how you want to run your business, but bottom line is: you should choose one. Incorporating or filing an LLC can provide you legal protection of your assets, which is something every business owner should have.
Looking at Your Options
There are several business structures out there, but the two primary ones you should consider are the corporation and the LLC. Both provide legal protection, but have a few key differences.
Why Consider the Limited Liability Company (LLC)
If you’re looking for minimal formality and paperwork, the LLC is a great option. You won’t have to fill out your annual report the way you would with a corporation, nor have a Board of Directors. If anyone tries to sue you, it would be deflected to the LLC, not your personal self, keeping your assets safe. LLCs are taxed on your personal income tax unless you specify otherwise. You’d report your profit and loss on your personal taxes, and not have to deal with “double taxation” like a corporation might.
On the flip side, an LLC won’t let you take advantage of 401k and retirement benefits because you can’t place yourself on your company’s payroll. Also, if you plan to sell your business, an LLC won’t make it as appealing to potential buyers as a corporation would be.
Why Consider the S Corporation
Out of all the different types of corporations, the S-Corp is the most popular for small businesses. You can pay dividends to shareholders, and issue shares of stock up to 100 shareholders. You also avoid the dreaded “double taxation” laws. You would file your taxes for the corporation with your personal taxes, unlike other types of corporations.
However, if you hate paperwork and deadlines, you might prefer the LLC. An S-Corp requires you to file Articles of Incorporation and an Annual Report. You’re required to have a Board of Directors and follow certain requirements throughout the year. It’s a bit more work, but can be worth the benefit for your business.
The key for business service providers is determining how you want your business to be run. If you’re looking for something more formal, consider an S-Corp. Otherwise, go with an LLC.
Here at CorpNet, we help entrepreneurs with all sizes of dreams – big, small and in-between. If you want to start a business, CorpNet can help you incorporate as an S-Corp or form an LLC to get your business up and running. We help entrepreneurs start a business by managing the business filings to incorporate a company. Whether you want to form an LLC, S-Corporation or other corporate entity, CorpNet can help you choose a business structure with a free business consultation.
Photo: victor1558 on Flickr