Have you decided to work for yourself, open a new business, and are wondering how to formally establish your services as a separate business entity?
Are you confused about the tax implications of the different kinds of business entities that are available to you? Have you decided on the corporate structure of your business? Whether you want investors, to be a public company, or sell your company in the future?
There are a number of factors that go into selecting the best business entity for a company or individual(s) based on short term and long term goals.
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Why a Corporate Formation Lawyer
- Preparation and submission of all required documents to incorporate and set up the company;
- Attorney can draft a detailed and clear Operating Agreement that takes into account your individual preferences and needs for your company; and
- Strategic advice from the beginning to the end of the process.
Requirements for Corporate Formation
There are different requirements to set up a business depending on the type of business entity you choose.
Benefits of Corporate Formation
- Having a company that is legally separate from you;
- Protection from liability;
- Tax benefits;
- Ability to enter into contracts as a legal entity; and
- Financial benefits and opportunities as a corporate entity.
FREQUENTLY ASKED QUESTIONS
The different types of business entities available in New York are:
- Sole Proprietorship.
- Limited Partnership.
- Limited Liability Company.
- Limited Liability Company with “S” Corp Designation.
- Not-for-profit Corporation.
Many business entities are complicated to set up, and an attorney can help you avoid any errors that can cause significant delay in getting the business set up. In addition, an attorney can draft essential documents, like the operating agreement and corporate bylaws, to best reflect your wishes. If you do not set up the corporation correctly and are not informed of all the formalities of each entity, you might find yourself facing tax consequences you wanted to avoid and personal liability. An attorney can also help you select the best business entity for you given both your short-term and long-term costs.
The structure you choose when starting a business will affect the amount you pay in taxes, the level of personal financial liability you will hold, and your ability to raise capital from investors, amongst other factors. As such, it is important to be as informed as possible when making this decision as it will have an effect on the success and longevity of your business venture.
A sole proprietorship is the simplest way to start and run a business. It is a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity.
- Easy Tax Filing.
- Difficulty Raising Capital.
- Full Personal Financial Liability.
A partnership is a business entity that is owned by two or more individuals.
There are two types: 1) a general partnership, where all is shared equally; and 2) a limited partnership, where only one partner has control of its operation while the other person (or persons) contributes to and receives part of the profit.
Allows owners, partners or shareholders to benefit from the tax and flexibility advantages of a partnership while limiting their liability.
- Limits personal financial liability.
- Offers flexibility of sole proprietorship or partnership.
- Tax incentives- only taxed on your share of profits.
- More difficult to form than sole proprietorship or partnership.
- With a “C” corp, all shareholders combine funds and are then given stock in the newly formed business.
- A “C” corp is a completely separate tax entity in the eyes of the IRS, meaning that your business can take tax deductions. It also means that earnings can be taxed twice, both as they stand in relation to your business and on your personal taxes, if you take income in the form of dividends.
- “C” corporation is the structure that provides the best shielding from personal liability for owners, and provides the best non-tax benefits to owners.
A “B” corporation designation is for those companies that are considered to be making a positive impact on society. In essence, they must have some sort of philanthropic interest aside from just solely maximizing profit.
The biggest difference between a “C” corp and an “S” corp is that the “S” corporation’s profits or losses go straight through to the “S” corporation’s owners, without being taxed separately first. In practical terms, this means that the owners can take their profits home without first paying the corporation’s separate tax on profits, so those profits are taxed once for the “S” owner, and twice for the “C” owner.