This means that S Corporation owners are shareholders, but these entities can have no more than shareholders. To form an S Corporation, you have to file articles of incorporation and pay the associated filing fee, usually with your Secretary of State. The corporation also has to appoint a board of directors. Profits or losses are reported only once on the personal tax returns of the shareholders, and the shareholders are taxed at individual tax rates rather than corporate tax rates. S Corporations can pay shareholders dividends, and dividends aren't subject to self-employment tax, which can result in significant savings.
However, if an S Corporation shareholder provides services to a business, the S Corporation must pay that shareholder a reasonable salary, which is taxable. The separation between the business and the owners also shields the personal assets of the corporation owners against business liabilities in most cases. But as with LLC members and C Corporation owners, S Corporation owners should commit to keeping business and personal assets separate to maintain asset protection.
When deciding between these four business entities, first ask yourself whether you want or need to incorporate as a consultant. Then, weigh the advantages and disadvantages of each entity and choose the one with the ease of formation, taxation, and legal protection you think you can benefit from most:. While these four options are the main types of business structures that will apply to you, trusts and nonprofit structures are also available, but consultants don't typically use them.
Understand that you have an array of options for your business when it comes to picking your structure; picking your business structure comes down to what works best for you.
Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile.
Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. If the following scenario fits you, it will probably make more sense—both financially and in terms of required upkeep—to incorporate in the state in which you conduct business.
You plan to limit your officers to yourself and a minimum number of other people. Depending on the laws of your home state, you may have to pay corporate taxes in both states.
The application and filing fees can cost as much as it would have to incorporate there. You must maintain a registered agent a person designated to receive tax notices, court papers, etc.
If this is your home state, you can be the registered agent. Still thinking about incorporating in Delaware? Delaware has come to be thought of as a corporate haven, mostly because of the protections it affords large companies. Delaware corporate law attempts to protect the interests of shareholders and requires corporate directors to act according to an objective standard.
Contrary to popular opinion, you do have to pay certain fees and taxes for incorporating in the state. Filing in Delaware may have some advantages for you if you hope to make it big. If you do need to incorporate somewhere other than your home state, perhaps because you do business across several states, you may find that one of these states is as good a place as any to incorporate.
Neither Nevada nor Wyoming collect state corporate income tax, franchise tax, or tax on shares. They allow you to form a corporation without naming other officers or directors, meaning that you can continue as a one-person operation if you wish.
Both states are geared toward protecting privacy and sheltering officers from liability rather than defending shareholder rights.
In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Grow Your Legal Practice. Meet the Editors. An LLC offers consultants the tax benefits of a partnership with the liability protection of a corporation.
What would you like to name your LLC? Need time on your business name? Start now and decide later. Some of the benefits the owners of LLCs enjoy include: Limited liability: Owners of LLCs are not personally responsible for the debts and obligations of the business, as long as they follow corporate formalities.
If someone sues an LLC, the owners' personal assets like their homes and cars are not on the line to satisfy the judgment. Flexible management structure: You can split profits and management responsibilities among the owners of your LLC in any way you see fit.
In contrast, corporations are managed by a board of directors, and the corporation must make distributions in proportion to their shareholders' ownership interests. Pass-through taxation: Unless the owners elect C Corporation tax status, LLCs do not pay corporate tax on business income.
The income " passes through " the business and the owners pay taxes on their share of the income on their personal tax returns. You can file paperwork to elect C Corporation or S Corporation tax status , which might allow you to avoid some self-employment tax and take deductions for fringe benefits. Simple to form and maintain: As discussed below, you can easily create an LLC by filing paperwork with your state. Compared to corporations, LLCs have few administrative requirements.
Professionalism : Your clients might be more willing to trust and work with a registered business such as an LLC than with a business like a sole proprietorship that is not subject to registration requirements.
By taking the extra step and incurring the additional costs of forming a separate business, you are demonstrating that you are committed to your company and your area of expertise.
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