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Which form of entity is right for your business? You have several forms to choose from C-Corporation, S-Corporation, Limited Liability Company (LLC), Partnership and Sole Proprietorship. Each is unique and has its benefits as well as drawbacks. Choosing the right entity now can save you big bucks in taxes, legal fees and accounting fees in the future.

There is nothing simple about choosing the right form of business for your company and there are no quick answers. You will need an accountant or lawyer that is well versed in company structures to help you make the best choice for you, your family and your company. Your goals, anticipated growth, line of services/products, potential for having employees and financing requirements all need to be considered when making this decision.

I have provided a snapshot of the pros and cons of a C-Corporation and an S-Corporation in this issue. I will address LLCs, Partnerships and Sole Proprietorships next month. These two articles will give you a starting point for considering the proper form of entity for your business.

C-Corporation (C-Corp)

*	is the most formal and structured type of entity.
*	provides more flexibility for providing company officers and shareholders with health insurance as well as more options for raising capital (i.e. finding financing).
*	can retain earnings (i.e. keep money in the business) to fund growth.
*	can purchase and hold property.
*	can have non-U.S. citizens as shareholders. Shareholders can be individuals or companies. There are no limit on the number of shareholders a C-Corp can have.
*	Corporate officers and shareholders are protected from the debts of the company unless they personally guarantee a loan.
*	must carry losses forward.
*	requires stocks to be set-up and issued.
*	is subject to double taxation. The IRS and the state tax company earnings. Shareholders are then taxed on the dividends they receive.
*	can be taken public (i.e. shares traded on the major stock exchanges).

S-Corporation (S-Corp)

*	is a formal entity that is structured similar to the C-Corp.
*	earnings are "passed through" to shareholders according to their ownership percentage. Whether the earnings are distributed or not, the IRS taxes the shareholders on their portion of the earnings for the year.
*	only U.S. citizens can be shareholders. S-Corps are limited to 75 shareholders.
*	requires stocks to be set-up and issued.
*	can't own stock in another company.
*	an S-Corp is formed as a C-Corp then changed using an IRS Form 2553. If this form is not submitted to the IRS by April 15th of the year the company elects to be an S-Corp the company will remain a C-Corp for that tax year.
*	Corporate officers and shareholders are protected from some of the company debts. Owners and shareholders can be held liable for employee salaries and taxes, however.
*	some states such as Virginia don't recognize an S-Corp structure.

While it is possible to change from one entity to another, it is complex and can be very costly, in terms of time, taxes, legal fees, accounting services and state registration charges. Take the time to find out which entity is best for you. Next month I will delve into LLCs, Partnerships and Sole Proprietorships.

Quick Tip
Be careful when using internet companies to form your business for you. Many government agencies require your signature on the paperwork. These companies are very limited in what they can do for you. They can't set-up an S-Corp with the IRS and they can't issue stock. It is in your best interest (and is more cost effective) to hire a good lawyer and/or accountant to handle this for you.

If you have questions or need clarification on anything, please feel free to call (406-216-2224) or email us.