12 {{ upvoteCount | shortNum }}
12 {{ upvoteCount | shortNum }}

Choosing the best corporation for IM'ers

by Kelvin Brown
10 replies
As a full time IM'er, what is the best way to setup a corporation. I know I need to incorporate to protect myself, my business and customers. But what is the best choice, in general for a one man operation, full time IM'er?
#choosing #corporation #imers
  • Profile picture of the author Jim Pearson
    Having owned several companies(all incorporated) there are a few basics to cover first.

    1) Corporate taxes vary per state so being incorporated in Delaware or Nevada has advantages for state tax purposes.

    2) If you plan on growing this business and someday selling it or passing it along to a family member then an s-corporation(sole proprietorship) is out

    3) A LLC ( check the state law in the state you plan to incorporate in) for smaller businesses generally is the most efficient and easiest to manage. LLC's give you the advantages of both c-corps and s-corps. You can sell LLC and issue stock.

    A local tax cpa can help you out as well as any of the national incorporation firms, like the company corporation.

    I hope this was helpful.
    {{ DiscussionBoard.errors[430981].message }}
    • Profile picture of the author ltdraper
      I am not a lawyer and this is not legal advice. But I've had and sold a lot of corporations.

      Originally Posted by Jim Pearson View Post


      1) Corporate taxes vary per state so being incorporated in Delaware or Nevada has advantages for state tax purposes.
      Actually, corporate filing fees vary from state to state. The state you incorporate in determines your choice of law, but it has nothing to do with the income taxes the corporation will pay. The corporation's income taxes will be determined by the state where it does business -- probably your home state.

      2) If you plan on growing this business and someday selling it or passing it along to a family member then an s-corporation(sole proprietorship) is out.
      Actually, you can sell an S-corp like any other corporation. Just transfer stock to an individual. S-corps are limited in the number of owners they can have and they can't have institutional investors. But there's no reason you can't pass ownership of an S-corp to your heirs.

      You can also convert an S-corp to a C-corp at any time. Just do something that violates the rules of an S-Corp and the IRS will decide that you're now a C-Corp. Going the other way isn't so easy.

      The biggest downside of an S-corp is that many health insurance providers treat S-corps as sole proprietorships, even though they are not. Thus it can be more difficult to get an insurance plan. Make it a C-corp and all of a sudden those roadblocks go away.

      The upside of an S-corp is that the income is taxed at your personal rate on your own tax filing, and therefore so are the losses. A C-corp has the double taxation problem -- the corporation is taxed, and then the dividends to you are taxed, which ends up being a lot more even with the lower capital gains rate. If you can get most of the income out of your business as expenses, then C-corps can be a very good thing.

      3) A LLC ( check the state law in the state you plan to incorporate in) for smaller businesses generally is the most efficient and easiest to manage. LLC's give you the advantages of both c-corps and s-corps. You can sell LLC and issue stock.
      The benefit of an LLC is that you can have passive investors. The partnership agreement determines how "dividends" are paid, and it doesn't have to be in proportion to the ownership. S and C corps require that dividends be paid according to stock values. Of course this gets more complicated because you can have different classes of stock, but generally people looking at an LLC are doing it for a corporate "partnership" type of arrangement.

      Originally Posted by Kelvin Brown

      I always here the advantages of Tax free states, but I never hear the advantages of incorporating in your home state.
      Depends what state you are in. Delaware provides a choice of law that is very pro ownership and majority shareholders. Other states have taken the track that since Delaware is available, their law will be more geared toward the minority shareholders.

      You should be aware that the filing fees in Delaware can be pretty steep in some instances. That's how they make their money, after all.

      Talk to a business lawyer. What you read for free on the internet is worth what you pay for it.
      Signature

      Nothing to see here, move along...

      {{ DiscussionBoard.errors[438352].message }}
  • Profile picture of the author Kelvin Brown
    Hi Jim,

    FYI: I will be doing business in Oklahoma.

    I always here the advantages of Tax free states, but I never hear the advantages of incorporating in your home state.
    Signature

    Kelvin Brown

    {{ DiscussionBoard.errors[431056].message }}
  • Profile picture of the author Kelvin Brown
    Just a bump
    Signature

    Kelvin Brown

    {{ DiscussionBoard.errors[435734].message }}
    • Profile picture of the author lgibbon
      Banned
      Originally Posted by Kelvin Brown View Post

      Just a bump
      And what if everyone did that?
      {{ DiscussionBoard.errors[435752].message }}
    • Profile picture of the author Ram
      The best thing is to talk with a lawyer about what's best for your situation. I would not go with one of those "incorporate cheap on the web" operations. You don't want to screw this up.

      I'm in Texas and own several LLCs. But that may not be right for you.
      {{ DiscussionBoard.errors[435754].message }}
  • Profile picture of the author Steadyon
    An LLC is something worth considering.
    {{ DiscussionBoard.errors[436038].message }}
  • Profile picture of the author absbica
    I will be doing an LLC for my company Absolute Bica very soon. I think its $99 and you have to file a few papers with the state, but protects your personal assets should someone come after you.
    {{ DiscussionBoard.errors[436119].message }}
    • Profile picture of the author JohnMcCabe
      Originally Posted by absbica View Post

      I will be doing an LLC for my company Absolute Bica very soon. I think its $99 and you have to file a few papers with the state, but protects your personal assets should someone come after you.
      Filing the paperwork is just the first step. You also have to be very careful to avoid mixing your personal and business transactions. Something as simple as borrowing from petty cash to pay a personal bill can get your protection thrown out. It's called 'piercing the corporate veil'.

      Whatever requirements your state throws at you, make sure you honor them and have the paper trail to prove it.
      {{ DiscussionBoard.errors[436166].message }}
      • Profile picture of the author jrandyv
        You really need to talk with an expert on this. LLC's work well, and are pretty inexpensive. It makes a lot of sense to just set it up in your own home state (otherwise you may end up paying both states fees for the same business).

        Also, be very careful and don't mix any funds. If you are careless it's like not having the LLC at all.
        {{ DiscussionBoard.errors[438293].message }}

Trending Topics