There are many factors to consider when setting up your business, but few are likely to affect it as much as the company type you choose. There are several choices available to you, and according to Forbes, C-corps and limited liability companies are usually the most common.
As you move through business formation, there are several strategies you can use to make a choice as to company type that may best benefit your investment.
The size of your company may be useful in helping you decide between an LLC and a C corp, such as one titled “Inc” at the end of its name. There are several factors you may consider here, including:
- The number of employees
- The number of owners
- Whether it handles both domestic and international transactions
If your company is a smaller organization, you may want to choose an LLC structure because this can help you avoid certain taxes that C-corps must pay. This may also make your annual tax return simpler, as the profits you report are included in your personal return.
Review tax laws
If you choose an LLC designation for your new business, you can choose taxation options offered to you by the Internal Revenue Service. It is important to understand that certain tax breaks depend on the size of your business. For example, if you operate an LLC under a sole proprietorship, you are not eligible for an S-corp tax structure. S-corp designations may offer you tax breaks if you choose an LLC title for your business.
You may elect for S-corp taxation up to just over 60 days after forming your business. Compiling a list of pros and cons for each structure and tax designation may help you make the most informed decision possible.