The busy working mom?s guide to Incorporating a Business or Forming an LLC
I understand the hectic schedule and day-to-day reality of today?s working mom. I myself juggle between being a business owner, entrepreneur, wife, and mother of three (soon four?). And I know that in the flurry of dreaming up ways to expand your client base, planning your advertising, managing play dates and car pools, it?s all too easy to put off some of the legal aspects of your business.
I?ve come across many working moms and female entrepreneurs who consider their businesses too small to worry about incorporating or forming a Limited Liability Company (LLC). However, incorporating a business or forming an LLC is an essential step to protecting your personal assets (such as your personal property or your child?s college fund) from any liabilities of the company. This means that if your business happens to be sued, your personal assets (i.e. property, savings accounts) are shielded from any judgment. And creditor judgments can last up to 22 years, so a Corporation/LLC can protect what you own today as well as tomorrow. In addition, incorporating or forming an LLC brings other benefits, such as potentially reducing your taxes.
What business structure is right for your business?
Your choice in legal structure can impact the taxes you pay and how much paperwork you?ll have to contend with. The three most popular business structures in the U.S. are the LLC (Limited Liability Company), S Corporation and C Corporation:
Limited Liability Company (LLC): An LLC is a hybrid of a partnership and corporation. There are no shares. An LLC?s main benefit, as the name suggests, is to limit the liability of the owners (separating your personal property from company property). An LLC does not file separate taxes; all company profits flow through to the owners and are taxed at the personal income rate.
C Corporation: A C-Corporation also known as a ?C-Corp? or also sometimes referred to as a ?General-For-Profit (GFP) Corporation is a legal entity. There are strict requirements to form and dissolve it. A C-Corporation can earn money, take out loans and be sued (again, this is a major benefit, since liability shifts from the owners to the corporation itself). A C-Corp is taxed separately and the company must file its own tax returns. And a C Corporation can attract investors and earn capital by issuing stock.
S Corporation: An S Corporation actually starts off as a C-Corp and then soon after incorporation, the owners submit Form 2553 to the IRS to be treated as a pass-through entity. Like a regular corporation, an S Corp is a collection of stockholders who share company ownership. But in this case, the income/loss of the company is passed through to each shareholder?s personal tax statement.
So back to the heart of the matter: which business structure is right for you? Much will depend on how much formality you want. An LLC is great for businesses that want legal protection, but minimal formality ? i.e. no exhaustive meeting minutes or addendum filings. It?s also the perfect structure for a start-up who will have foreign owners. An S Corporation is great for a small business owner who can qualify: The IRS places limits both on the number of owners and on who can be an owner in an S Corporation. A C Corporation should be used for those businesses that plan to reinvest their profits back into the company or seek venture capital funding.
As for timing, since the main benefit of incorporation is liability protection, the sooner you incorporate or form an LLC, the better. There?s simply no reason to wait and potentially expose yourself to any more liability than you need to. Now that your 2010 taxes are filed, it?s a perfect time to take the next step in your business. Good luck!
Nellie?Akalp is CEO of CorpNet.com, her second incorporation filing service based?on her strong passion to assist small business owners and entrepreneurs in starting and protecting their business. She has formed over 100,000 corporations and LLCs across the U.S.? To learn more about?Nellie and see how she can help your business get off the ground quickly and affordably, please visit here.
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