A sole proprietorship is best suited to small businesses that are owned and run by one person with low risk and low profits. Generally, these businesses don’t have a wide range of customers but rather a small, dedicated group. Sole proprietorships often start as hobbies that grow into a business. Because there is no separation between the owner and the business, the owner is entitled to all of the profits. However, the owner is also entitled to all of the debts and obligations and can even be held responsible for liabilities caused by employees.
LLCs are perfect for most small businesses due to their simplicity, affordability, flexible taxation structure, management flexibility, and minimal recordkeeping and reporting requirements. Note that not every business can operate as an LLC, so check your state statute. For instance, the banking and insurance industries are typically prohibited from forming an LLC, while some states like California and Nevada prohibit licensed professionals like accountants, attorneys, architects, physicians, from forming an LLC.
Corporations are best suited for businesses that want to raise funding from venture capitalists and other investors. Corporations can become publicly traded companies, whereas LLCs and sole proprietorships cannot. With that said, corporations have to meet certain requirements that may not be well suited to a small, informally run business. For instance, corporations must hold annual shareholders meetings, file annual reports, and pay annual fees to the state and have onerous recordkeeping requirements.
No. To obtain exclusive rights to your business name, you must first trademark it. There’s a lot more that goes into obtaining a trademark than forming an LLC or a corporation. We focus exclusively on trademarks. For more information about registering a trademark, see our U.S. Trademark Registration Services.
To protect your company’s brand, you must trademark it, which is what we can help you with. Click here to start your trademark now.
No. An LLC is a type of legal or business structure, while a trademark is a type of intellectual property. An LLC protects personal assets from financial liability while trademarks protect the brand name and/or logo of a company, preventing the business name and/or logo from being used by another business. So, if you’ve formed an LLC or a corporation and want to protect your business name and/or logo, then you should get a trademark, which is what we can help you with.
Yes, an LLC can own a trademark.
Whether you should form an S Corp or a C Corp usually comes down to how you want the corporation to be treated for federal income tax purposes.
S corps are pass-through taxation entities, which means that S Corps file an informational federal return (Form 1120S), but no income tax is paid at the corporate level. This means that the profits and losses of the business are “passed-through” to the business and reported on the owners’ personal tax returns. As such, any tax due is paid at the individual level by the owners.
On the other hand, C Corps file a corporate tax return (Form 1120) and pay taxes at the corporate level. This means that corporate income tax is paid first at the corporate level and again at the individual level on dividends. As such, C Corps possibly face double taxation if corporate income is distributed to the owners as dividends, which are considered personal tax income.
An S Corp cannot have more than 100 shareholders, meaning it can’t go public and is limited in its ability to raise capital from new investors. In contrast, a C Corp can have as many owners or shareholders as it wants or needs and can go public.
Yes. You can convert a sole proprietorship to an LLC. It requires you to file articles of organization with your state secretary. Also, you will have to refile your “doing business as” (DBA) to keep your company name. Lastly, you will need to obtain an employment insurance number, or EIN, from the IRS.
An operating agreement is a binding legal document between the owners of an LLC that records each member’s ownership interest and that governs its structure, management, and daily operations
An operating agreement is needed for an LLC formed in California, Delaware, Maine, Missouri, and New York.
To form an LLC, owners or “members” do not have to meet any nationality or citizenship requirements.
To form a corporation owners are required to be individuals or certain types of trusts, with fewer than 100 owners – all of which need to be U.S. citizens or a U.S.-based trust.
Unlike a corporation which may exist in perpetuity, even if the owner leaves or passes away, an LLC does not exist in perpetuity and may be dissolved if something happens to the owner.
Costs vary depending on the state of work and residence and whether a business owner hires an attorney but incorporating with S Corp tax classification can cost anywhere from $100 to $250, while registering as an LLC can cost anywhere from $50 to $500.
Corporations have a fixed management structure that consists of a board of directors that oversees company policies and officers who run the day-to-day business. Owners, also known as shareholders, must meet every year to elect directors and conduct other company business. LLCs don’t have this formal structure, and an LLC owner has significantly more flexibility about the way they run the business and make decisions. Additionally, LLCs encourage owners to participate in the management of the business, while corporations allow owners to be hands-off and take a salary as an employee.
LLCs have a flexible taxation structure in that they can be taxed as a sole proprietorship, a partnership, or a corporation. The Internal Revenue Services, or “IRS,” automatically classifies LLCs as either partnerships or sole proprietorships, depending on whether they have one owner or more than one owner, which means that LLCs do not pay any corporate taxes. Instead, income and expenses pass through to the owners’ personal tax returns, and the owners pay personal income tax on any profits.
While some corporations, such as S corps, can avoid double taxation and receive “pass-through” tax treatment like LLCs, not all corporations are eligible. For instance, traditional C corporations are taxed twice on distributions to shareholders, once at the corporate level and once at the individual level.
LLCs aren’t required to distribute profits equally or according to ownership percentages. For example, two people may have equal interests in an LLC but they may agree that one of them will receive a greater share of the profits because he/she contributed more money or labor in the business.
Corporations must distribute profits to shareholders according to the number and types of shares they hold.