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Topaum-company Formation Explained Copy 2

Topaum-company Formation Explained Copy 2

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Published by Jonathan T Buffa
Discuss the various types of entity formation and reasons for deciding on -Company Formation, Domestic Business, British Virgin Island Company Formation, Bahamas Formation
Discuss the various types of entity formation and reasons for deciding on -Company Formation, Domestic Business, British Virgin Island Company Formation, Bahamas Formation

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Published by: Jonathan T Buffa on May 22, 2012
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Company Formation
 
When registering a company, C corporation or C corp is the most commoncorporation type, but it isn’t always the top choice for small businessowners. C corporations provide limited liability protection to owners, who arecalled shareholders, meaning owners are typically not personally responsiblefor business debts and liabilities. C corporations may also offer greater taxadvantages because of an expanded ability to deduct employee benefits,which are most often used by growing businesses.
Ccorpadvantages
C corporations typically provide a number of advantages:
Limited liability protection.
Owners are not typically responsible forbusiness debts and liabilities.
Unlimited owners.
C corps can have an unlimited number ofshareholders.
Easy transfer of ownership.
Ownership is easily transferable throughthe sale of stock.
Unlimited life.
When a corporation’s owner incurs a disabling illness ordies, the corporation does not cease to exist.
Raise capital more easily.
 Additional capital can be raised by sellingshares of stock.
Credibility.
Corporations may be perceived as a more professional/ legitimate entity than a sole proprietorship or general partnership.
Lower audit risk.
Generally C corporations are audited less frequentlythan sole proprietorships.
Tax deductible expenses.
Business expenses may be tax-deductible.
Self-employment tax savings.
A C corporation can offer self-employment tax savings, since owners who work for the business areclassified as employees.
WhychooseanScorporation?
S corps are corporations that have elected a special tax status with the IRS.S corporations provide the same limited liability to owners (calledshareholders) as C corporations, meaning that owners typically are notpersonally responsible for business debt and liabilities; however, Scorporations have pass-through taxation. S corporations do not pay tax atthe business level. They file an informational tax return but business income/ 
 
loss is reported on the owners’ personal tax returns, and any tax due is paidat the individual level.
Scorpadvantages
Many small business owners form a corporation and elect S corp status forpass-through taxation. Other typical advantages include:
Limited liability protection.
Owners are not typically responsible forbusiness debts and liabilities.
Easy transfer of ownership.
Ownership is easily transferable throughthe sale of stock.
Unlimited life.
When a corporation’s owner incurs a disabling illness ordies, the corporation does not cease to exist.
 
Raise capital more easily.
 Additional capital can be raised by sellingshares of stock.
Credibility.
Corporations may be perceived as a more professional/ legitimate entity than a sole proprietorship or general partnership.
Lower audit risk.
Generally S corps are audited less frequently thansole proprietorships.
Tax deductible expenses.
Business expenses may be tax-deductible.
Self-employment tax savings.
An S corp can offer self-employmenttax savings, since owners who work for the business are classified asemployees.
 
Scorporationownershiprestrictions
Per IRS guidelines, S corporation owners (shareholders) must meet thefollowing criteria:Number 100 or less.Must be US citizens/residents (cannot be non-resident aliens).Cannot be C corporations, other S corporations, limited liabilitycompanies (LLCs), partnerships or certain trusts.
WhychooseanLLC?
LLCs provide limited liability protection to their owners (called members).Typically, owners are not personally responsible for business debts andliabilities of the company so creditors cannot pursue owners’ personalassets to pay business debts.
 AdvantagesofanLLC
Business owners stand to gain many benefits when they register a company
 
as an LLC. These benefits are, in many cases, unavailable to soleproprietorships and general partnerships. Creating an LLC typically providesthe business owner with the following advantages:
Limited liability protection.
Owners are not held personallyresponsible for business debts and liabilities.
Pass-through taxation.
Typically LLCs do not pay taxes at thebusiness level. Income/loss is reported on the owners’ personal taxreturns and any tax due is paid at the individual level.
No ownership restrictions.
LLCs do not face restrictions on thenumber or type of owners.
Flexible management.
Owners have flexibility in structuring companymanagement.
Fewer ongoing formalities.
LLCs have less annual paperwork than,and do not face the meeting requirements imposed on C corporationsand S corporations.
Credibility.
LLCs may be perceived as a more legitimate businessthan a sole proprietorship or general partnership.
Consent to add owners.
Written consent of LLC members must beobtained prior to increasing ownership in the company or adding newowners.
Whychoosealimitedpartnership?
 A limited partnership (LP) is similar to a general partnership while still offeringlimited liability protection to some of the partners. In an LP, at least onepartner must be a general partner with unlimited liability, and at least onepartner must be a limited partner whose liability is limited to the amount ofhis or her investment. Limited partners act as “silent partners” making acapital investment much like passive shareholders in a publicly tradedcorporation but having no involvement in the management decisions of thebusiness. An LP allows for pass-through taxation, as its income is not taxed at thebusiness level. Income or losses are reported on the partners’ tax returns,and any tax due is paid at the individual level. Limited partners can uselosses to offset other passive income on their tax returns. General partners’losses can be used to shelter other income up to the value of theirinvestment in the partnership, since their losses are not usually consideredpassive.
 Advantagesofalimitedpartnership

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