To get your new business off on the right foot, one thing you need to do early on is decide which business structure will best serve your needs, both in the short run and as your company grows. There are basically four structures to choose from, and each has its own merits.
Doing Business As (DBA)
When you form a business as a sole proprietorship or general partnership using a name other than your own, it is called a DBA. In this type of business structure, you essentially are your business, and your business is you: “Jane Brown, doing business as Brownward Dog Yoga.” If you fail to file your company as a DBA, you will have to conduct business under your own name, or under the names of you and your partners.
DBA Pros and Cons:
In a sole proprietorship or general partnership, a DBA allows you to conduct business without the compliance requirements of a corporation
Sole proprietorships and general partnerships do not enjoy the personal protections of incorporation, and owners are held personally responsible for the business liabilities and debts
Corporations and LLCs can also file a DBA if they wish to conduct business under a name other than that which is registered with the state.
Limited Liability Corporation (LLC)
An LLC is a good choice for smaller businesses who want the protections of a corporation without excessive compliance guidelines. Under an LLC, the company’s owners are not held personally responsible for the company’s liabilities.
An LLC may be right for you if:
You anticipate losses in the first couple of years
You prefer flexibility in accounting
You desire flexibility in management
Your business owns real estate
You want flexibility in profit sharing among owners
You do not want to have to comply with annual meetings, record keeping and other formalities imposed on corporations by the state
You want to benefit from certain tax advantages and deductions not available to sole proprietors
You need to raise capital
You want to increase your credibility with banks, customers, vendors, partners and employees.
An S Corporation is a good alternative choice for a small business. It provides the same protections as an LLC, plus it gives additional tax advantages. If shareholders of the S corporation are also employees, Social Security and Medicare (FICA) taxes apply to compensation they receive as employees, but not to profit distributions they receive as shareholders.
C corporations tend to serve larger businesses with dozens or even thousands of shareholders. For a new business, incorporating as a C corp only makes sense if you expect to realize enormous growth and profits in the first few years.
C corps have some disadvantages, including:
Double taxation on yearly business profits when distributed to shareholders
Strict compliance laws about meetings, record keeping and profit distribution
Formal business structure, with a board of directors and shareholders who are often not involved in daily operations
However, a C Corp also has its advantages:
Can have unlimited shareholders from anywhere in the world
Can have multiple classes of shares
Offers the widest range of deductions and expenses allowed by the IRS
Deciding on Your Business Structure
Setting up your new business can be fun, but it can also require research and advise to ensure you are making sound decisions, every step of the way. In deciding on your business structure, it is a good idea to consult with an attorney and/or accountant to ensure your business will make the most profit with the least amount of stress.
The specialists at Windsor know the ins and outs of incorporation, and can give you expert advice tailored to your particular business needs. Don’t run the risk of making business decisions you will later regret. Contact Windsor Publishing today, and let the pros at Windsor Law guide you through the incorporation process.