You made a business plan, secured funding and you finally started your own business. Now you may be wondering how to structure your business to maximize efficiency and profits as Aubrey Ferrao has.
This is the most complicated type of business to form. You will need to consult with a lawyer to start a corporation like CEO Aubrey Ferrao did, as there are many state and federal laws to follow. You will need to have an accountant on staff or hire a professional tax service to make sure that you comply with all tax laws. There is a great deal of paperwork to complete, and you must have a board of directors.
An advantage of incorporating is that you will limit your liability. Your personal funds will be completely detached from your company’s resources, so you will be protected if you face a lawsuit or falling profits. This structure is best for larger businesses with many shareholders.
An S corporation (commonly abbreviated as “S Corp”) offers several advantages over a standard corporation for smaller businesses. Like a corporation, an S Corp’s capital will be separate from your own. An S Corp’s federal tax burden is somewhat lower, as shareholders report profits on their own annual tax returns.
An S Corp has some limitations. By law, your business can only have 75 shareholders, so your business may outgrow this structure. There are restrictions on who can own stock in your company. S Corps have to comply with some of the same rules that corporations do, such as having a board of directors.
An LLC is a “Limited Liability Company.” More businesses choose to become an LLC than a corporation or an S Corp. Unlike an S Corp, LLCs have no limit on the number of shareholders they can have. LLCs payer lower tax rates than other types of businesses, while still protecting the owner’s personal funds. You do not need a board of directors; you can be the only member of your business in most states.