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Different types of Corporations for your Home BusinessWhen deciding which Home Business opportunity you are going to focus your valuable time and energy in, you should also spend some time deciding if you want to "house" your Home Business inside a corporation, for tax and/or legal purposes. There are so many potential advantages related to doing this that you may find the decision as to whether or not to incorporate to be a no-brainer. Assuming that you have decided that it is a good idea to incorporate your business, you next need to decide which type of corporation your are going to go with. You have several options, and they all have inherent advantages and disadvantages, different strengths and weaknesses to consider. The structures we will consider here are S-corp, C-Corps, and Limited Liability Companies. Let us first consider an S-corporation. This is a pass-through tax entity, which simply means that income that is generated by the business is also shown on your personal income tax return. And of course, this also applies for losses. In other words, this corporation is attached to you, your financial destiny and that of the corporation are somewhat intertwined. It is a part of you, essentially. Perhaps the main advantage of an S-corp is the entity may save money you in taxes, since by using this structure you can recieve income in the form of dividends, which of course is taxed at a significantly lower rate than employee income. A potential negative of an S-corp is that this structure has certain restrictions; for example, ownership is restricted. This means an S-corp can't be owned by other corporations, most trusts, or partnerships. Another type of Corporation you may want to consider is a Limited Liability Company, also known by it's abbreviation LLC. An LLC is similiar in it;s tax structure to an s-corp, thus providing a number of tax advantages, and it is also a pass-through entity. It is not subject to the same restriction an s-corp is regarding ownership. LLC's may have any number of members, and may also have subsidiaries without restriction. Unlike an s-corp, non-US residents may be members of an LLC. Another type of corporation you may want to consider for your Home Business is a C-corp. This structure possibly provides the best liabilty protection of any of the corporations but may not have as many tax advantages as the other two corporate structures previously mentioned. But what distinguishes a C-Corp is that it is basically a completely seperate entity than you, another you, if you will. With a C-corp there is no double taxation unless dividends are declared, which can make it ideal for using profits to grow you business. A C-Corp may offer the most protection from liabilty compared to the other entities mentioned, and it may also provide the most flexibilty and ability to grow in comparison to the others. It should be stressed that you should talk to a certified accountant and/or an attorney before choosing the corporate(or other) entity that is right for you, as there are many details to consider that have not been mentioned in this brief article, which is meant to be a brief and superficial overview. |
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