LLC, C-Corp, S-Corp

bytenram

OK, while I am looking at forming an LLC, I want to know what is best for a business that is in early stages and growing.
I want to initially open up one retail store.  Would the tax benefits etc be better on an LLC rather than the c or s corp.?
When/if the business grows and I do have a lot more sales and maybe 2 or more stores could I change from LLC to C-corp. or S-Corp? 
Will my business name have to change?
These are just thoughts of mine.  I do not know anything about incorporating and this is the first step of my knowledge seeking efforts.
Thank you all for your help.
 
Gerald

PiperTax

Hi Gerald.
An LLC is by default taxed as a sole proprietorship. As such, your profits will be subject to regular individual income tax as well as self-employment tax.
If you form a C-Corp, your profits will be taxed at corporate rates. Then, if you pay out (to yourself, as a dividend) any of what`s left, it`ll be taxed at 15%. Or, you could take it all out as salary, but then the net tax effect is literally exactly the same as if you were a sole proprietorship. Summary: Only form a C-Corp if you plan to have a significant amount of profit (6 figure range is generally the rule of thumb.) and you plan to reinvest most of it rather than pay it out to yourself.
If you form an S-Corp, you are required to pay yourself a "reasonable salary." However, if there are still profits remaining after paying yourself that salary, you can distribute them to the owner (yourself), and they won`t be subject to the self-employment tax. Summary: Potential for savings, but make sure to take into account your substantially increased legal and accounting fees from being an S Corp.
For more info, I`d suggest doing a little reading, as well as probably meeting with your accountant and lawyer. (I`d of course recommend Nolo has numerous good ones as well.)PiperTax2007-10-15 12:32:22

pepperlegal

Gerald,
Piper is spot on with his analysis.  From a legal perspective, there are about a dozen or so criteria I typically review to determine which business entity would work best.  A detailed business plan can typically dictate your decision as well. 
The Small Business Administration website at www.findlaw.com</A> have some pretty good resources as well. 

bytenram

Thank you both for your replies.


 


I do have a rough draft of my business plan if you would like to look at it.


 


Also, I am going to sit down with my CPA and Attorney the first part of November to work on details and complete the business plan.


 


Thank you for all of your time and effort.



 


bytenram10/15/2007 8:52 PM

LizardWisdom

You might also want to check out Legal Zoom for information about the right business structure for you. You can also set up the business structure on their website, though you did mention that you have a CPA and Attorney.