How Should I Incorporate?
One of the questions I am most often asked by startups is “How should I incorporate?” And the answer is simple: it depends. We evaluate many things, and before we advise you we talk through the different variables and what-if scenarios. Some key items to consider include how you are funded, the number of owners, intentions with the business (do you intend to sell your business?), your expected revenue, your personal finances, the type of industry you work in and the current climate in that industry.
When it comes to selecting your legal organization, there are many options and things can get complicated. One of the big differentiators is how each entity gets taxed. A single member LLC is taxed differently than a S-Corp. But, a single member LLC can elect to be a S-Corp for tax purposes. Did you know that an LLC can also elect to be taxed as a C-Corp? And where does a multi-member LLC fall in here? Multi-member LLCs are considered partnerships for tax purposes unless they elect otherwise. Single member LLCs, partnerships, and S-Corps are considered pass-through tax entities, meaning the tax of the business is paid by its owners on their personal tax return. Only a C-Corp pays its income taxes from the business.