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Old 02-24-2004, 06:52 PM   #1 (permalink)
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Location: Yonder
What sort of company?

I'm going to incorporate, to protect myself from liabilities as I do freelance web development work, and for tax purposes.

There are all these different sort of companies... Corporations, S Corporations, LLCs, LLPs, Sole Proprietorships... I'm confused about which is which, and I'm getting different advice from different people about it.

Does anybody know about this? Can anybody give me a run-down of the pros and cons of the various forms of incorporation?
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Old 02-25-2004, 05:51 AM   #2 (permalink)
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Here you go...

http://www.newmagnolia.com/types.html
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Old 02-25-2004, 06:00 AM   #3 (permalink)
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I was about to post a similar type link as onetime2 did.

Whatever you do is basically based on the amount of personal risk you are willing to accept.

Going with a Sole Proprietorship will allow you much better tax advantages and at the end of the day you'll keep more of the profits for yourself. But if your business goes down - you will go down with it.

Going with a Corporation would certainly protect you if your business fails - but more of the money is gonna be going to Uncle Sam.

I would find myself a lawyer who specializes in setting up new companies (you'll need one anyways) and talk to them about your options and how much you're willing to expose yourself and your family.

personally I would go the route of the LLC

---------------

Limited Liability Company (LLC)

LLCs have long been a traditional form of business structure in Europe and Latin America. LLCs were first introduced in the United States by the state of Wyoming in 1977 and authorized for pass-through taxation (similar to partnerships and S Corporations) by the IRS in 1988. With the recent inclusion of Hawaii, all 50 states and Washington, D.C. have now adopted some form of LLC legislation for both domestic and foreign (out of state) limited liability companies.

Many business professionals believe LLCs present a superior alternative to corporations and partnerships because LLCs combine many of the advantages of both. With an LLC, the owners can have the corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations. It is similar to an S Corporation without the IRS' restrictions.

Advantages
Protection of personal assets from business debt
Profits/losses pass through to personal income tax returns of the owners
Great flexibility in management and organization of the business
LLCs do not have the ownership restrictions of S Corporations making them ideal business structures for foreign investors

Disadvantages
LLCs often have a limited life (not to exceed 30 years in many states)
Some states require at least 2 members to form an LLC, and
LLCs are not corporations and therefore do not have stock -- and the benefits of stock ownership and sales.
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Last edited by Daval; 02-25-2004 at 06:03 AM..
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Old 02-25-2004, 09:37 AM   #4 (permalink)
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You definitely want limited liability. That way if you have problems, they can only take what is owned by the corp. and not what is owned by you and lurkette.
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Old 02-25-2004, 03:02 PM   #5 (permalink)
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edit.

Last edited by Force 10; 02-25-2004 at 06:46 PM..
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Old 02-25-2004, 09:42 PM   #6 (permalink)
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With the declinein personal income tax rates by the tax act of 5/03, S-Corps are probably a very good bet - with limited liability and pass-through taxation.

LLC's would be another good choice, and can be more flexible than an S-Corp should you chose to bring a partner in. S-corps are limited in that they can only have one type of stock, and sitributions must be made pro-rata based on ownership - which can be a pain if you own 75% of the corp, do 100% of the work, and still need to pay distributions to your parter.

Both are easy to set up, and can be done for several hundred dollars. Or yourself if you're feeling adventurous.

Annually, S-Corps file a 1120s form federally and whatever state form is available (Oregon has a 20s). LLC's will file a 1065 partnership return federally, except if it's a single member LLC, at which point the income and expenses can be put directly on the owner's schedule C, form 1040.

Also, should things go bad and you need to liquidate, LLC liquidations are generally tax-free compared to S corps, which is a taxable event.

Check with your state department of revenue about LLC - they vary from state to state.
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