Enough with the imagery, let’s talk about the real, critical details of the decision we’re about to make. Taxes, liability, privacy, flexibility, ownership, control, simplicity, growth, image, and reputation all depend on how we form our business. This is no decision to take lightly. Whether incorporating or starting an LLC formation, we have several crucial things to think about to start out on the right path.

The 5 Critical Factors You as an Entrepreneur Need to Decide About Your Own Business Before Choosing Between an LLC Formation or Incorporating

1) Exit Strategy

Your business is an investment. When investing, you should always know your exit strategy. What’s your end goal? Are you looking to keep this business and pass it on to loved ones at some point in the future? Do you intend to sell it? Is it your ambition to offer this business publicly as an IPO? Do you want to keep your options open? Having thought through your primary goal and other options clearly will help make decisions about incorporating and LLC formation much easier.

2) Business Location

Location, location, location. Crucial in many businesses. Maybe this sounds obvious, but don’t take location for granted. Maybe you know where you plan to headquarter your business, but will you be shipping anything? Where will you ship from? Where will you warehouse your stock? Will you have multiple offices? Do you plan to own that property or lease? Will it be shared or exclusive? Don’t assume that where you personally work should be your primary business address. And certainly don’t assume that your home state is the place you should be incorporating or starting your business as an LLC formation.

3) Growth and Expansion

What’s your long-term business plan? How will you grow? Will you be seeking out investors? Will you want the business to hold a lot of cash? How large do you want to grow? How many employees? How many potential owners? Will you consider acquiring other businesses? Your method of Incorporating or LLC formation depend on these questions. Even if you plan to only hire yourself, think carefully about how you intend to grow your business.

4) Owners, Investors, and Control

As we mentioned above, entrepreneurs need to think about who will own the business. Will ownership be shared with investors? Will owners also be managers or workers? How important is privacy to the owners? How much control do you want owners to have over the day-to-day operations? Absolute? None? LLC formations and corporations provide different avenues for dealing with these issues.

5) Product

Last, but not least, you need to think long-term about product. Of course, as entrepreneurs, we think about product all the time. But don’t just think about the products you had planned. Think about potential changes in the market or your growth plans and how that could change your product in the future. Think about brand and how this effects your product. Will you only deal via one method, i.e. tangible products, service, or digital products? Do you want to stay open to changing this? How do shipping, partnerships, or outsourcing play a role in your product plans? How much product will you want to store? How risky is your product (i.e. potentially dangerous equipment, risky services, etc.)? These questions should not be too quickly brushed over when considering your decisions about incorporating or LLC formation.

We all want to exercise good financial I.Q., to minimize taxes, to protect our assets, and insure the stability and growth of our business. Considering the above 5 issues make a world of difference in decisions about incorporating or LLC formation. And they even effect what state or country is best to form our business in.

Not meaning to complicate matters, but just to clarify a few things:
Incorporating means forming a C-Corporation. If you and any other owners choose, you can have the corporation designated as an S-Corporation, a “pass-through” tax entity. Forming a Limited Liability Company (LLC formation) is not technically incorporating. In the U.S., some states, like Nevada and Delaware, are very favorable to LLC formations. Other states are not so favorable. An LLC owner can elect to be taxed in 3 or 4 ways: Individual or Partnership (depending on if there are 1 or more than 1 members), C-corporation, or S-corporation. This makes an LLC formation quite flexible and able to adjust to the growth of the business by imitating incorporation. There are some differences, however, for example in the way ownership and stocks are handled.

Thanks for reading about the 5 critical factors every entrepreneur needs to consider when deciding whether incorporating or LLC formation is right for their own business!

Read about the 5 important issues to consider when incorporating your own business here!

(While the above is intended to help educate you to make an informed decision and written to provide as accurate and valuable information as possible, please do not consider any of the above as professional or legal advice. Always be sure to get advice from authorized professionals whom you know to be trustworthy.)

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There are a number of ways to form your business, from C-Corporation, to S-Corporation, to LLC formation, and more. For all of them, however, you should take the time to consider several important issues about what you want for your own business when incorporating:

1) Products and Services
When incorporating your company, it’s important to think about what products and services your business will be selling. If you will be shipping goods, where to and where from? What risks are involved? Don’t think only about your current plans for products and services, but also about the future possibilities.
2) Incorporation Services Companies
You’re probably planning to use an incorporation services company to officially form your business. Good decision. They’re low cost, can save you a lot of headache, and will make sure things are done right. Just make sure you choose a good one that can meet your incorporation needs. Check for liability and service guarantees. Check online forums for previous customer feedback. Give several a call and see how competent they seem. Let them know you’re comparing firms so they pull out all the stops in their professionalism and maybe even give you a discount (have some fun with the incorporating process).
3) Risk & Liability
What kind of risks are involved in your line of business? Think about the obvious, like if you’re in the health or food industry. Also think about the slightly less obvious, like how many people could potentially get angry with you in your line of business. What kind of legal and/or personal problems could arise? Make sure your incorporation plans match your business risks to insure you and your family are safe from personal liability as well as the grudges of easily-offended people.
4) Privacy
Privacy goes hand in hand with the risks and liability of doing business. The privacy of your name and personal information can go a long way to protect you and your family. It can also insure your control over managing your and your business’s reputations. When incorporating your business, think about the different corporate and LLC formations and how the location of incorporation can effect your personal privacy.
5) Location
Don’t just think about the location of your operations, although this is obviously crucial for many businesses. Think also about where you want to incorporate or start an LLC formation. Incorporating is not limited to your home state (or country for that matter). In the U.S., Nevada and Delaware are very popular because of their privacy, tax, and legal liability laws. The state you incorporate in is the state who’s laws legal settlements will be based on, no matter where you may reside or do business. Incorporating your business in the right place is critical to achieving the goals of your business.

The above 5 issues all tie into each other, and no issue is complete without considering the others. Take your time and think through these decisions carefully as you begin the process of incorporating. It can be costly to change the structure of your business in the future.

Thanks for reading the second 5 most important issues to consider when incorporating your own business!
Here’s to your business success now and in the future.

(While the above is intended to help educate you to make an informed decision and written to provide as accurate and valuable information as possible, please do not consider any of the above as professional or legal advice. Always be sure to get advice from authorized professionals whom you know to be trustworthy.)

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Consider these 5 issues when incorporating your business:

1) Ownership
Who do you want to have ownership of the business? Only you? A small group of investors? Will owners and managers or employees be one and the same? Would you like to give employees partial ownership via stocks? Do you have hopes or plans for going public in the future? All of these factors can impact decisions when incorporating your business.
2) Control
This is different than ownership. Maybe you don’t want owners to have much control over how the business is run, for example that family member who has some extra cash for investment, but not much business sense. Or maybe you prefer the owners to have complete control over budgets and major decisions, leaving management with only control over what is necessary. How complex do you intend control to be? One or several clear leaders, or checks and balances? Incorporating or LLC formation have different methods for dealing with your plans for control of the company.
3) Employees
How many employees? Or maybe you’re starting a business only for yourself. What kind of benefits do you want to provide for them? Certain tax credits, i.e. MERP, are only available to certain kinds of business forms.
4) Growth and Investment
When thinking about growing your business, maybe you’re hoping to just be big enough to sustain several people, or maybe you want consistant, unlimited growth. How will you achieve this? Will you spend all the business money on growth or build up cash assets? You might also consider the investments of others, such as family, friends, angel investors, or venture capital firms. When incorporating, it’s important to consider how the business formation effects your growth strategy and the perspectives of prospective investors.
5) Expansion
Beyond organic growth, would you ever consider acquiring another company, a competitor or maybe a supplier or client? Or will you use your current business to start new businesses in the future? Your incorporation decisions impact the ability of your business to expand and the costs associated with expansion.

When incorporating, the above 5 issues all play a vital role in the decisions you make. They make a difference in whether you should form an LLC formation or Corporation. They make a difference as to which state will best help you achieve your goals. Incorporating is actually a quite simple process if you’ve thought clearly about these issues concerning your business.

Thanks for reading the first 5 of the top 10 issues to consider when incorporating your own small business!

Read the next 5 important issues to consider when incorporating your own business here!

(While the above is intended to help educate you to make an informed decision and written to provide as accurate and valuable information as possible, please do not consider any of the above as professional or legal advice. Always be sure to get advice from authorized professionals whom you know to be trustworthy.)

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So, “If I start my own business as a Nevada Incorporation (or LLC Formation), what benefits are there?”

・A nearly impenetrable corporate veil
・No state income tax- corporate or personal
・No franchise taxes (as opposed to Delaware Incorporation)
・No corporate shares taxes, gift taxes or inheritance taxes
・Stock may be issued for cash, property, or services
・Directors have control over stock value
・1 Person can hold all positions in the company (form a Nevada incorporation with only yourself!)
・Very small annual fees
・Efficient, predictable court system (modeled after the Delaware court system, offering solid protection to your business)

Note: Some of the above are best taken advantage of by having a corporate address in Nevada (although you may not need to personally be located in Nevada).  For example, if you incorporate in Nevada, yet do the majority of your operations in California, you may need to pay income taxes in California.

Some disadvantages to incorporating in Nevada?

There aren’t real strong disadvantages to incorporating in Nevada, however there are several things to consider:

If you’re wanting to go public with your company in the future, incorporating in Delaware might be better for you than a Nevada Incorporation.  Delaware has a longer reputation of a strong legal system protecting shareholders.  Investors may prefer your company to be incorporated in Delaware (a quick look at the statistics shows that more than half of the Fortune 500 companies are incorporated in Delaware and 90% of new IPOs come out of Delaware).  However, for privately-held corporations, Nevada may be the best.

Also, as mentioned above, not all of the benefits of a Nevada Incorporation can be utilized unless you have a corporate address in Nevada.  If you don’t want to do this, Nevada Incorporation may not provide all the benefits you’re hoping for.

Keep doing some research and be sure to seek professional advice when deciding if a Nevada Incorporation is right for your own business.

For more information, check out these links:

Delaware Incorporation
LLC Formation

(While the above is intended to help educate you to make an informed decision and written to provide as accurate and valuable information as possible, please do not consider any of the above as professional or legal advice.  Always be sure to get advice from authorized professionals whom you know to be trustworthy.)

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Delaware Incorporation is a growing trend in business. Whether you are considering incorporation or an LLC formation, Delaware should be top on your list of states to consider starting your business in. Whether you consider yourself an entrepreneur, planning to start a number of businesses, or this is your one “baby”, a Delaware incorporation could be just the right balance of liability protection, cost savings, and legal simplicity that your looking for. Here are the 7 best reasons for choosing a Delaware Incorporation or LLC formation.

1) The U.S. Chamber of Commerce rates the Delaware legal system number 1

Since the U.S. Chamber of Commerce began rating legal systems, Delaware has received number 1 in every area of rating.

2) Delaware does not require members’ names to be made public

For LLC formations, Delaware allows members personal names and information to remain private.

3) 90% of new IPO’s come out of Delaware

What a great number to show the value of Delaware Incorporation.

4) State laws protect owners from liability more than many other states (especially for LLC’s)

With a Delaware Incorporation, Delaware’s laws must be followed in any legal dispute, regardless of the state of operation.

5) Most of the Fortune 500 companies are founded in Delaware

Another great proof of why Delaware Incorporation should be one of your first options when starting a business.

6) Protection against creditors

Delaware liability laws don’t allow personal creditors to touch the business, protecting owners from potential credit problems of other owners.

7) Simplicity of legal system

The Delaware legal system is relatively simple and straightforward, being very adept at dealing with business legal issues.

There are 7 reasons to move Delaware incorporation to the number 1 spot in your business formation plans. Consider starting a Delaware incorporation or LLC formation today!
(While the above is intended to help educate you to make an informed decision and written to provide as accurate and valuable information as possible, please do not consider any of the above as professional or legal advice. Always be sure to get advice from authorized professionals whom you know to be trustworthy.)

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A somewhat common misnomer is to call an LLC a “Limited Liability Corporation”, but an LLC is technically not a corporation.

A Limited Liability Company protects owners from the majority of business liability.

It’s flexible in that owners can elect for it to be taxed in 4 ways:

1) sole proprietorship (if only 1 owner)
2) partnership
3) S- Corporation
4) C- Corporation

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First, let’s start with the benefits of starting your own business via LLC formation:

1) Reduced Liability

LLCs reduce the liability you face as a business owner. Similar to a corporation, The LLC functions as a separate legal entity, protecting owners from liabilities of the business.

2) Flexibility and Control

A Limited Liability Company can be structured with multiple levels of membership, giving different control and income benefits uniquely to each person. Also, membership can be easily transferred or adjusted, making this a great option for family businesses.

3) Tax Savings

When you form your business as a Limited Liability Company, you retain more of your earning power in several ways (under the normal “partnership” classification:
Taxes happen at the member level, not the business level, avoiding “double taxation”
Expenses are deducted before income is counted, allowing the employees to avoid being taxed on all revenue
Greatest organizational tax flexibility

Note: a LLC is federally taxed as a Sole Proprietorship when their is only one member. With more than one member, a LLC can choose to be taxed as the traditional partnership, S Corporation, or a C Corporation, enjoying the same tax benefits as those types of business formations.

4) Income Sharing

You can have your children or others with lower income taxes owed working for you, providing money for your family, without paying as much taxes on that income.

5) Marketing Advantages

If you own a small business, having the “LLC” or “L.L.C.” at the end of your business name can provide great benefits to your businesses image. It raises the perceptions of your customers and clients. With a Limited Liability Company, you gain a certain amount of instant trust. It adds to those invaluable first impressions to display proof of your LLC formation.

Who are Limited Liability Corporations for? You may be asking yourself, “Is a LLC formation right for me?” Well, a LLC is great for owners of businesses who want great flexbility in the types of control each owner has. It’s a good way to structure a real estate company or as a method of owning boats or planes. It’s the simpler business formation when it comes to taxes and paperwork, so if you have an aversion to those, this may be the way to go. A LLC formation is also a great form for a family business, allowing easy transfer of ownership from one generation to the next.

When you ask yourself, “Is a LLC formation right for me?”, remember that a LLC is certainly not the right business for everyone. If you wish to attract investors and raise capital for stock, Corporations can be a better option. The legal structure of corporations is generally more trusted by venture capitalists and angel investors, and the LLC does not provide the same kind of stock options to investors, especially for those investors hoping for an eventual IPO. If you want your business to own other businesses now or in the future, the LLC formation is limited to 80% ownership of another business.
A couple other drawbacks are “phantom income” and “earned income”. Phantom income is income that the LLC earns and uses to purchase an asset. While this income is not received by the owners, they still may be taxed on it. Also, all income that is received by members of an LLC formation is considered earned income, whereas corporation income could be considered passive income, such as capital gains. (The earned income drawback can be avoided by U.S. citizens or residents via a Subchapter “S” Election).

As always, be sure to educate yourself with good research, surround yourself with professional advice, and think through the options carefully before making such an important decision, such as LLC formation, with your business.

Here’s to business success in 2009!

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First, let’s start with the benefits of starting your own business via LLC formation:

1) Reduced Liability

LLCs reduce the liability you face as a business owner. Similar to a corporation, The LLC functions as a separate legal entity, protecting owners from liabilities of the business.(...)
Read the rest of Basic LLC Formation Benefits, Who’s a LLC Formation for and Who is it Not For? (605 words)

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Post tags: Business Formation, LLC, LLC Advantages, LLC Benefits, LLC Disadvantages, LLC Drawbacks, LLC Formation, LLC Tax Benefits, Tax Benefits, Tax Savings

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