The first step you’ll need to address on your way to registering your business is selecting a new business structure. Your business structure will affect the way you operate, how well your personal assets are projected, and determine how you handle taxes. You’ll want to ask yourself what your goal is in starting your company:
There are a few different options to choose from, but the most common for service businesses is an LLC. As your business grows, however, you may want to switch to an “S” Corporation, or use the “S” corporation’s taxation model when you start out. More on that below.
An LLC enables the business owner to protect their personal assets and liabilities from any business concerns. With an LLC, your personal property is protected against lawsuits, creditors, trademark infringements, property damage, and other issues that may arise with your business.
This model also offers flexible taxation options. You can either choose an LLC pass-through (the default), where the amount of taxes you owe is based on the owner’s self-employment tax, or treat it like an S-corp where you’re taxed for the profit/loss of the business.
A C-corp, meanwhile, allows your business to be a completely separate entity from shareholders and owners. This is the safest option when it comes to liability, carries a lower risk of an audit, and lenders and suppliers like working with them. However, you get taxed twice, once as the corporation and again on your dividend (pay, salary, bonus).
A Subchapter Corporation – or “S” Corporation – has the same pros as a C-corp, but shareholders and owners are taxed directly in place of the business for profit/loss, so they aren’t taxed twice.
The default structure. Your personal assets are not separated from the business entity. This means it offers virtually no legal protection for you from lawsuits and creditors, and if your business gets sued, your personal and business assets both become the target. As a sole proprietorship, you won’t be able to hire employees but usually don’t need to be registered with the state. Should you decide to hire, you can change your structure into an LLC or “S” Corp.
Structured for two or more people that will co-own the business. You can choose to have a limited partnership (LP) with a general partner who will be exposed to liability, while the limited partners receive limited liability. If you do this, it’s important to fully define how the company is set up and what’s run by whom in the event of legal troubles or arguments between owners.