There are many different options to consider for the structure of a business when beginning a new venture. There are advantages and disadvantages to each business structure; the deciding factor is selecting the business structure that best suits the needs and function of the business model. There are some obvious advantages to forming a corporation opposed to an LLC, partnership or sole-proprietorship. If a corporate structure is the direction, than forming an S corporation seemingly offers the most beneficial situation for the least amount of risk. Corporate structure offers more protection, more potential for tax credits and more flexibility to owners and shareholders.

The most obvious difference between corporations and the other options is the limited liability structure; owners and shareholders are not personally liable for the debt and losses of the corporations. In a sole-proprietorship or partnership, the creditors and government can go after the owners personal assets such as the home or personal bank accounts to recover losses. Corporations are a separate entity protecting both the owners and investors, better known as shareholders. Transferring ownership of the business is also much easier than the other forms of structure; the entire business is easily transferable between parties opposed to selling off individual aspects as assets.

Operating a corporation also offers the owners more opportunities in tax credits because of different tax breaks and a few loopholes as well. A sole-proprietorship must pay the IRS approximately 13 percent in self-employment tax on the earnings for the previous year; the owner for an S corporation can split this same total of earnings between salary for the owner and profit for the company. The salary for the owner then drops a tax bracket paying an even lower percentage; the profit from the corporation will be in a lower tax bracket now as well. This scenario saves the corporate owner 50 percent more in self-employment tax than the sole-proprietor.

The corporations also have larger limits in terms of employment insurance and taxes, health insurance and other business liabilities. Ultimately, corporations pay more in these types of fees; however, there are often substantial tax credits to offset these necessary liability expenses. It will be easier for corporations to establish favorable retirement plans as well as other benefits for employees. Corporations establish more credibility with the public and last long into the future beyond the life of the owners. Investors or shareholders are not personally liable for their stock in the company so many more people are compelled to invest in a corporation than a proprietorship hoping for a ROI from the goodwill of the brand.

There is more work and capital involved with starting a corporation; there are more start-up fees and annual fees to pay for owners. There is also more flexibility and a greater potential for savings and profit as a corporations opposed to a sole proprietorship. Owners should consider all options carefully and select the structure that business reflects the business model for success and allows for a viable exit strategy. Visit LLC.NET for more information on the costs and benefits of choosing a corporation opposed to an LLC, partnership or sole-proprietorship.


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