No matter which structure you choose for your business, you will be restricted by specific benefits and limitations. Making the best possible structural decision is crucial to your company’s long-term and short-term success. While the “right” structure for your business will depend on various factors, here are several different aspects worth considering as you choose whether to incorporate as a C corp, an S corp, an LLC (Limited Liability Corporation), or just simply file a DBA (doing business as).
Going the DBA route
If you already run a sole proprietorship or general partnership, then you probably already know that your business is actually filed under your personal name(s). If this is the case, it can make it very difficult to market yourself, as you’re legally obligated to transact business under your name(s) alone. For example, if you run a computer repair shop, you would have to refer to your business as John Smith, not Smith’s computer repair. Doesn’t exactly allow you to position yourself correctly, does it?
If you want name your company something other than your name, you have two options. Either file for incorporation and change your business structure, or simply file a DBA (also known as a fictitious business name). Both of these solutions require you to file some formal paperwork at the county or state level, depending on where you’re located. You would then continue operating as a sole proprietorship or partnership.
However, this simple fix isn’t always the best move. Many sole proprietorships and partnerships can actually benefit by the tax advantages and asset protection provided by incorporating. It might take some extra administrative and legal effort, but it’s often well worth it.
Filing as an LLC
While it’s technically considered incorporation, filing to change your business structure to an LLC is often considered a happy medium between the flexibility and informal nature of a sole proprietorship or partnership and becoming a traditional corporation. Filing as an LLC removes the need to file a DBA, and provides certain protections that can be of a substantial benefit to your business.
The LLC filing process is typically done at the state level. In most cases, you may choose to incorporate your business in any state, regardless of whether or not you are located in or operate within it. While it does require a bit more administrative and organizational work, it’s typically much less than is involved with incorporating under a different structure. For most small organizations, restructuring can be a relatively simple and streamlined process. However, it can be difficult to ensure that it’s the “right” decision for your business, so speaking with a filing professional can be a prudent decision.
Filing as a C or S corporation
Filing and operating as a C corporation or S corporation requires much more paperwork, and is restricted by a few more regulations, than an LLC or DBA. However, incorporating under an C corp or S corp provides an increased ability to acquire investment funding or financing, which is often worth the extra effort. C corps and S corps are also taxed differently than less formal structures. For new businesses that hope to grow aggressively, or large pre-existing organizations, filing as a C or S corp is often the recommended approach.
Depending on the type of corporation you file as, there may be some ownership restrictions (primarily in filing as an S corp). However, both of these structures require mandatory, documented annual meetings as well as documentation of many day-to-day operations. The filing process can also be much more resource intensive, so it’s not always advisable for small, cash sensitive organizations to go this route. If you are a smaller company, but think that you will benefit from filing as a C or S corp, there are filing services that can more expediently help you register your business.
However, there are some definite advantages to filing under a more formal structure. A C corp is the only type of organization that can “go public” and sell an unlimited number of ownership shares. C corps are typically taxed at a higher rate due to taxes being imposed at both a personal and corporate level. This is often mitigated by the owner having access to more capital, enjoying higher revenue potential, and ultimately, the ability to turn higher profits.
An S corp is able to take advantage of the same tax benefits as an LLC in that both are only taxed at the personal level. This can also make S corps ideal for companies that plan to operate at a loss for a period of time, because these losses can “pass through” as well. However, S corps cannot issue traditional stock and are limited to only 100 stakeholders (owners). Each owner must be a legal resident of the United States.
Swyft can help!
The options may seem overwhelming, but there are great rewards for figuring out the ideal corporate for your business. Luckily, you’re not alone. The experienced professionals at Swyft and help guide you through this process.Contact us today!