Thinking about how to start a company can seem overwhelming but it need not be. In the United States, the general steps are the same with the details depending on where you live, the company structure you are forming, and whether your business requires any type of special licenses. The first decision to make is whether your business will be a sole proprietorship, partnership, corporation, or LLC. If you have more than one person in the business, you have a choice of either a partnership, an LLC, or a corporation. If you need liability protection, you need either an LLC or corporation. The choice between and LLC and corporation comes down to taxation essentially.Do you want to learn more? Visit i need help to start with professional company.
So do you need liability protection? In today’s litigious society, I would say that unless you are completely isolated from individuals, you should get liability protection. Depending on the level of risk you are willing to take, you may decide not to get the liability protection right away. You can start a business as a sole proprietorship and after 6 months when your business is established, you can form an LLC or corporation. One more option to get business liability protection is to get commercial liability insurance.
As for an LLC versus a corporation, sometimes you may not have a choice. If you are in the insurance or banking industry, you cannot form an LLC. Similarly, if you are a professional architect, accountant, or medical professional (doctor or licensed health-care worker) you cannot form an LLC either.
When it comes to LLC vs. corporations, we need to get into specifics to understand which choice is better. For example, let’s say you are located in Oakland, CA in Alameda County and want to start a company. In California, both LLCs and corporations have to pay an $800 annual fee/tax minimum (and we’ll go into more detail on this). The filing fee for an articles of organization is $70 as of 2011. The articles of incorporation filing fee is $100 in California as of 2011. Each year, you will need to file an SI-200 for corporations, or LLC-12 for LLCs which will be $20 or $25.
Most small business owners will consider an S corporation. To make your corporation an S Corporation, you must file Form 2253 with the IRS, and your corporation will become an S-Corp at both the Federal and California levels. The annual tax for S corporations is either $800, or the 1.5% of the net income of the corporation, whichever is greater. This means that once your net income exceeds approximately $54,000 per year, you will start paying greater than $800.
A reminder that gross income in is receipts and gains from all sources less cost of goods sold. Total income means gross income plus the cost of goods sold. Net income will mean the income after taking into account expenses. All this means is that to determine whether or not an LLC or corporation is advantageous in terms of taxation benefits, you need to have an idea of your gross income and net income. You can then calculate which company structure will save you money. This is obviously hard to do if you are just starting your company. If you do get to those levels of income, a few hundred dollars savings may not mean as much to you anyways.
A common question in regards to how to start a company arises when registering a corporation is which state to incorporate in?. The most popular considerations are Delaware, Nevada, Wyoming, or your own state. Why would you want to register in a state different than your home state? Two reasons are laws regarding corporations, and the possibility that you will move. Going to our previous example, if you are living and operating your business in Oakland, CA, you are going to have to register as a foreign corporation and deal with California franchise taxes whether your corporation is registered in California or any other state because you are operating a business in California. Determining which state to incorporate in is a complex topic and takes into account tax laws of separate states, as well as liability, disclosure, and privacy laws.
For the sake of argument, assume you decide to register your corporation in California as an S Corporation. You need to file an Articles of Incorporation document with the state and send Form 2253 to the IRS. At this point, you can fill out the forms yourself, or hire a company or individual to do this. Corporation filing will take around 6 weeks.