The choices you make in how to structure your business when you are starting out can have major implications for the taxes you might pay and for the legal liabilities you might face down the line. If you are starting a small business in Orlando, Florida, or already own a business and are considering how to best structure your business to optimize your legal protections and reduce your tax burden, Legal Counsel, P.A. employs a business lawyer in Orlando, Florida who may be able to help you. Every small business will have its own unique needs and challenges, and while the information below is meant to be informative, nothing can replace the advice of a business lawyer when it comes to finding the best way to structure your business. Have questions about whether you should choose an LLC or S corporation in Orlando, Florida? Reach out to Legal Counsel, P.A. today.
The Advantages and Disadvantages of Establishing an LLC
There are several benefits and drawbacks to establishing your business as an LLC. With an LLC, you can have multiple business owners or just one business owner. The main benefit of an LLC, is that it differentiates business liability from personal liability, and business debts from personal debts. If the business is sued, the plaintiff in the lawsuit can go after business assets and income, but generally the plaintiff in the lawsuit cannot go after the LLC member’s personal income or property. However, these protections may be limited in some cases. LLCs offer members the ability to have their income taxed as a partnership or sole proprietorship, meaning that with an LLC, the company isn’t taxed as a corporation, though these protections may not always apply in every case. In most cases, with an LLC, your income from the business is accounted for on your personal tax return. This means that all business income is paid on your personal tax return and that you’ll be responsible for paying Social Security and Medicare taxes.
Have questions about what this all means? Still not sure whether an LLC is the right structure for your business? Reach out to Legal Counsel, P.A. a law firm who employs a business attorney in Orlando, Florida who may be able to help.
The Advantages and Disadvantages of Establishing an S Corporation
An S corporation offers limited liability for shareholders of the business, and may offer some tax benefits and protections. However, when forming a corporation, owners must follow all laws regarding corporations. With an S corporation, business profits and expenses are accounted for in the business tax return. The owner’s salary is counted as an expense, and the owner then does their own personal tax return with the salary paid from the business expenses. If you are the sole owner of an S corporation, you’ll need to file two tax returns, one for your business, and one as your personal tax return. According to Forbes, one way to determine whether an S corporation might make sense for your needs is to consider whether your business will still have profit above and beyond what might be considered a reasonable salary for someone in your profession. So if you are a dentist, making more than what the average dentist in your region makes, it might make sense to form your dentistry business as an S corporation. However, every situation is unique. And sometimes determining what might be considered a “reasonable” salary by the IRS can be challenging.
S corporations are limited to 75 shareholders, have limitations in the kind of shareholders they can have, and are subject to other restrictions and laws, including the requirement that all shareholders follow corporate formalities and laws. Legal Counsel, P.A. can review your situation and help you determine whether forming an S corporation is right for you. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.
Forming an LLC vs. Forming an S Corporation
The process for forming an LLC differs from forming an S Corporation. In order to form an LLC, owners file their articles of organization with the government. Documents outlining your organizational structure are not required, but if you have more than one owner, having this documentation might be highly advised. With an S corporation, you’ll need to file a certificate of formation with the government. A corporation must have bylaws and the formalities of corporate structure must be followed. Directors and officers of the corporation will have certain duties to the shareholders. Basically, directors and officers must act in a manner that serves the best interests of the company’s shareholders.
Thinking about forming an LLC or S corporation? It is important that you complete all legal formalities thoroughly. Even if you aren’t required to have a clear organizational structure, as is the case with an LLC, having documents outlining how disagreements, and how partnership splits will be handled can offer important protections should your company or business relationships change. Legal Counsel, P.A. is a business law attorney in Orlando, Florida who works closely with individuals who are starting their own businesses and companies. The choices you make in corporate or business structure today can have a major impact on the legal liabilities and tax liabilities your company might face down the line. Make the right choices today. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.