BUSINESS CORNER TO INCORPORATE OR
Many small business owners are so preoccupied with the daily
tasks of managing their company that they don't stop to consider whether they are operating under the most advantageous organiza- tional structure. The wrong choice can have far-reaching liability and tax consequences. The decision for a small business to Incorporate or to form a
S
Limited Liability Company (LLC) provides a number of clear advan- tages. These are legal business entities that are separate from their owners. This means that corporate owners/shareholders and LLC owners are protected from personal liability for the company's debts. If the business gets into serious financial trouble, the law prevents creditors from coming after personal assets, so long as the debt was not personally guaranteed. There is also a measure of personal protection from liability judg-
ments, although there is some debate on this issue if you are an offi- cer or director of the company. Other advantages include the ability to raise capital from the sale of stock in the corporation or additional interests in the LLC, and there is some favorable tax treatment. There are two types of corporations. The main advantage of the
"C" corporation, or general corporation, is that it has no limit on the number of shareholders or the classes of stock. It is more appropri- ate for companies planning to publicly trade their stock. The disad- vantages include the costs to create and to operate. Also, profits may be subject to double taxation (i.e., corporate income is taxed, and then dividends to shareholders are taxed as part of their personal income).
The "Subchapter S" corporation is a general corporation that has
elected a special tax status with the IRS after the corporation has been formed. All profits are distributed to shareholders in propor- tion to the number of shares owned. The shareholders then pay personal income taxes on the distribution. The main advantage here is the avoidance of the double taxation peculiar to the "C" corpora- tion. A disadvantage of the "S" corporation is that it is limited to 100 owners, all of whom must be U.S. citizens or permanent residents. Also, there can be only one class of stock and some restrictions on fringe benefits.
This article is not intended to favor one entity over another. You
should consult with an attorney and tax accountant who can help you determine which organizational structure best suits your particular needs. SCORE business counselors can also assist you with reference materials on the subject. There is no charge for individual one-on- one counseling. The Naples SCORE business office is located at 900 Goodlette Rd. North in the Fifth Third branch bank. Appointments can be arranged
by calling (239) 430-0081 or by visiting their website
https://scorenaples.org/face-to-face-counseling.
PULSE MAGAZINE ---------- 34
hould we incorporate our new business or file as a Limited Liability Company (LLC)? Please explain the advantages of each.
NOT TO INCORPORATE? ABOUT THE WRITER:
SCORE can assist you in developing a business model that works. Contact them at
www.ScoreNaples.org.
GRAY POEHLER is a volunteer with the Naples Chapter of SCORE, a nonprofit organization that offers free
counseling to America's small businesses. To learn more about management issues facing small businesses today and SCORE's Workshops, call 239-430-0081 or visit
www.ScoreNaples.org. Questions for the writer may be directed to:
http://tinyurl.com/askscore
The volunteer counselors at the Naples Chapter of
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