September 22, 2020
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Business Setup

Failure to plan

Are You Planning to Open Your Own Business?

It is true that capital and the right location are key elements to start your own business. However, successful businesses are not a matter of luck. They are the result of detailed and serious planning.


Before you start thinking about Business Licenses & Permits, you need to decide in the business structure for your business. Keep in mind that choosing the right business structure for your business can be a tricky business in itself. Because the form of incorporation you choose will affect the taxes you pay, who can invest in your company, and your financial security.

Now, do you need to incorporate to start a business? The answer is No. You can begin as a sole proprietor. The advantage of this business structure is that it is simple and does not require filing all the different taxes of a corporation. All you have to do is file a Schedule C on your personal tax returns to report business income. However, a sole proprietor has no legal protection of his/her personal assets. There is no limit to his/her personal liability for business failures or mistakes.

On the other hand, a corporation is a separate legal entity from you So you are not directly responsible for the debts, tax contributions, judgments, etc.. Thereof. In other words, the corporation is responsible for its own obligations.

Here are some of the advantages and disadvantages of the main Business Structures


Sole Proprietorship

Advantages

  • Easy and inexpensive to set-up and operate
  • Minimal external regulation
  • Decision making is informal and centered in the owner
  • No qualification requirements for doing business in other states
  • Business profits and losses are reported in the owner’s personal income tax return
  • Minimum working capital requirements
  • Some tax advantages for small business owners
  • All profits go to the owner


Disadvantages

  • Owner is personally liable for the obligations and liabilities of the business
  • Death or disability of owner terminates business
  • Sale or transfer of business requires transfer of individual assets


General Partnership

Advantages

  • Ease to set-up
  • Low start-up costs
  • Multiple owners can provide a combination of individual resources and talents
  • Minimal formalities are required for organization
  • Decision making may be informal
  • No qualification requirements for doing business in other states.
  • Minimal external regulation
  • The owners (partners) report their share of profits or losses on their personal tax returns


Disadvantages

  • The owners (partners) are personally liable for the obligations and liabilities of the business
  • Death, disability, or withdrawal of a partner may terminate partnership
  • divided authority
  • Difficulty to raise additional capital
  • Hard to find suitable partners


Corporation

Advantages

  • Shareholders have limited personal liability for the obligations and liabilities of the corporation
  • Ownership interests are freely transferable
  • Perpetual existence unaffected by the death of shareholders or transfer of shares
  • Specialized management
  • Centralized authority in board of directors
  • No limitation on the number or types of shareholders
  • Flexibility of financing is available through the sale of various types of securities
    to many investors
  • Tax-favored fringe benefits are available to employee-shareholders
  • Owners can split corporate profit among owners and corporation, paying lower overall tax rates


Disadvantages

  • Closely regulated
  • Most expensive to set-up
  • Most expensive to organize
  • Charter restrictions
  • Formalities are necessary for the organization and operation
  • Extensive record-keeping necessary
  • Separate taxable entity
  • Double taxation
  • Losses of business may not be deducted by individual shareholders
  • Hard to liquidate the investment


S-Corporation

Advantages

  • Shareholders have limited personal liability for the obligations and liabilities of the corporation
  • Ownership interests are freely transferable
  • Perpetual existence unaffected by the death of shareholders or transfer of shares
  • Centralized management
  • The owners (partners) report their share of profits or losses on their personal tax returns
  • Owners can use corporate losses to offset income from other sources


Disadvantages

  • More expensive to set-up
  • Closely regulated
  • More red tape that the LLC, although it offers similar benefits
  • The income must be allocated to owners according to their ownership interest in
  • Fringe benefits are limited to those who own more than 2% of the share capital
  • Maximum of 75 shareholders


Limited Liability Company (LLC)

Advantages

  • Shareholders have limited personal liability for the obligations and liabilities of the corporation even if they are part of the managenment
  • Gains and losses can be allocated differently than ownership interests
  • IRS rules now allow LLCs to choose between paying their taxes as general partnership or as a corporation


Disadvantages

  • More expensive to set-up
  • Closely regulated
  • State laws to set-up LLC may not reflect recent federal tax changes
  • Interests are not freely transferable
  • Transfer of interests may be subject to securities law regulation





As you can see, every business structure has its pros and cons. At Zhagui Solutions we study your case and advise you which business structure is more appropriate for the success of your business. Keep in mind that the right structure of your business will result in considerable tax savings which will continue as long as you are in business.

As part of our business setup services, we provide the following services:
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  • Business Licenses and Permits
  • Registering a Business Name (DBA)
  • Employer Identification Number (EIN)
  • Business Structures
  • Incorporation and Business Formation
  • Business Plan Assistance
  • New Business Consulting

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Additional services include: audits and attestation services, corporate dissolutions, and, liquor license applications for bar, restaurants, groceries etc.

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