LLC? LLP? Inc.? Choosing The Right Structure For Your Business

April 14, 2009

Today’s post is written by guest author Kenneth Sprang, a corporate and international business transactional attorney based in the Washington, DC area.

In recent years the LLC has become the darling of entrepreneurs and small businesses around the country. But the LLC is not always the best choice. Sometimes a Subchapter S corporation or another structure is preferable. This article helps you choose the right structure for your new business.

Determine Your Long Term Goals

Is your goal to create a company that will grow and then go public, or be sold to a larger company for millions of dollars, or do you intend to run a small family business where you, members of your family, and perhaps a few trusted associates will be involved? Will you operate primarily in your home state, or will your focus be national or international? These questions are critical in deciding how to organize your new business. For example, if your goal is to be acquired or go public, you probably want to create a “C corp.” If you and a few friends or family members are creating a business that will not expand, at least in terms of owners, an LLC may be perfect. On the other hand, you may want the formalities of a Subchapter S corporation.

When to Use an LLC

LLC’s and corporations both insulate the owners from liability. An LLC has “members” rather than shareholders. The members can run the company or have one or more “managing members” do so. The LLC is an excellent tool for holding rental property–I recommend that each building be held by a separate LLC so that any liability is limited to that building. If your company is going to have only a few owners or members, an LLC may be ideal. The paperwork is somewhat simpler than a corporation (though many states allow “close corporations” in which the shareholders run the organization just like members of an LLC). The LLC is usually a good substitute for a sole proprietorship. Note that all income from the LLC will be treated as ordinary income and subject to FICA and income tax. Although you can elect to have an LLC taxed as a corporation, generally the LLC is taxed like a partnership or sole proprietorship and profits are distributed to the members and taxed as ordinary income.

When to Use a C Corporation

A C Corporation is a garden variety corporation with no limits on the number of shareholders it can have. If you want to grow your shareholders and maybe go public or be acquired, a C Corporation is generally the best choice. The local XYZ Store can be a C Corp, and IBM is a C corp. When creating a C Corporation, you will need guidance on how many shares to authorize and how many shares to issue. This is true for both a C corp and a Subchapter S Corp

When to Use a Subchapter S Corporation

If you create a corporation, you may file a form with the IRS asking to be treated as a Subchapter S Corporation. In order to qualify, the number of shareholders must be limited and no shareholder can be a corporation. The advantage of the Subchapter S Corporation is that profits or losses are passed directly to the shareholders and the corporation itself is not taxed. With a Subchapter S, you can pay yourself a salary but distribute some profits as dividends, possibly avoiding self employment tax on some income..

Where Should I Organize My Business?

Generally speaking, you can organize your business in any state where you have an actual presence. That can be the state where you live or it can be a state where you have an office. Many companies organize in Delaware, because Delaware does not require companies to have a physical office in Delaware. You can have your registered agent there serve as your office. There are three things to consider: First, where do you have a physical presence. Second, what are the franchise or similar fees charged in the states you are considering. For example, CA charges $800 a year, while Delaware charges less than $200 for a small company. Finally, in what state will your business be taxed and what are the tax rates there? If you can organize and operate your business in a state with lower tax rates, that is usually an advantage.

 Mr. Sprang is a corporate and transactional lawyer with special expertise in labor and employment law.  He represents business clients throughout the United States and in Europe. He can be reached at: DC International Counsel, 5335 Wisconsin Ave., NW, Suite 440, Washington, DC  20015, (202) 895-1504, Fax: (202) 403-3644;
ksprang@dcinternationalcounsel.com

 

 

 

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EB-5 Regional Center List Grows; 2 New FL Projects

November 28, 2008

[NOTE: USCIS HAS UPDATED THIS LIST AS OF DECEMBER 2008. PLEASE SEE OUR LATEST ARTICLE HERE]

The Immigrant Investor (EB-5) Pilot Program is designed to encourage foreign investment by providing a vehicle for investment in the form of an economic unit called a “Regional Center.” The Regional Centers are private or public entities that have received government approval to participate in the program. They enable the amassing and pooling of capital for targeted investment in designated regions in the United States.

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Quels Types d’Affaires Pouvez-Vous Faire avec un Visa B de Touriste ou Sous Le Programme d’Exemption de Visa?

August 12, 2008

Bien que les ressortissants étrangers ne peuvent vivre et travailler aux Etats-Unis avec un visa de tourisme et d’affaires (B-1 ou B-2) ou sous le programme d’exemption de visa, certaines activités commerciales sont autorisées. D’une manière générale, le visa B-1 d’affaires ou le programme d’exemption de visa permet les activités suivantes :

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USCIS List of EB-5 Regional Centers; 2 New Centers in CA Approved

May 17, 2008

[NOTE: THE REGIONAL CENTER LIST HAS BEEN UPDATED. PLEASE SEE THE REVISED LIST HERE: EB-5 Regional Center List Grows; 2 New FL Projects]

The Immigrant Investor (EB-5) Pilot Program is designed to encourage foreign investment by providing a vehicle for investment in the form of an economic unit called a “Regional Center.” The Regional Centers are private or public entities that have received government approval to participate in the program. They enable the amassing and pooling of capital for targeted investment in designated regions in the United States.

Read the rest of this entry »


International ODR Part 5: How To Select An ODR Leader

April 11, 2008

Today’s post concludes a series co-authored by attorneys Gini Nelson and Vonda K. Vandaveer on the use of online dispute resolution to solve problems associated with traditional ADR. [Earlier posts: Part One, Part Two, Part Three, Part Four.]

 This post addresses the question:

 Are There Special Considerations In Selecting An ODR Leader For Business Disputes?

Selecting the appropriate person to conduct your ODR is a critical element to success. ADR and ODR specialists are not interchangeable. ODR differs from ADR because the ODR dynamics and the technologies that must be managed are different than face-to-face dispute resolution processes.

Read the rest of this article, part 5 of a 5-part series, on Gini Nelson’s Engaging Conflicts blog.


International ODR Part 4: Does It Need To Be In The Contract To Do It?

April 10, 2008

Today’s post continues a series co-authored by attorneys Gini Nelson and Vonda K. Vandaveer on the use of online dispute resolution to solve problems associated with traditional ADR. [Earlier posts: Part One, Part Two, and Part Three.]

 This post addresses the question:

 My Contract Does Not Address ODR. Can I Take Advantage of It?

As with traditional ADR, ODR does not need to be specifically required in the contract. The only requirement is that both parties consent to ODR. In fact, even if you are the defendant in a case or feel as if the other party has all the power, you should still consider proposing ODR because the corporate culture of the opposing party might be to promote the use of ADR to resolve disputes.

Read the rest of this article, part 4 of a 5-part series, on Gini Nelson’s Engaging Conflicts blog.


International ODR Part 3: What Disputes Work Well for ODR?

April 4, 2008

Today’s post continues a series co-authored by attorneys Gini Nelson and Vonda K. Vandaveer on the use of online dispute resolution to solve problems associated with traditional ADR. [Earlier posts: Part One, Part Two.]

This post addresses the question:

What Disputes Work Well for ODR?

Online ADR works well for most business disputes, assuming the parties want to obtain a mutually-acceptable resolution to their problem as opposed to “winning.”

Read the rest of this article, part 3 of a 5-part series, on Gini Nelson’s Engaging Conflicts blog.