There are many good reasons to invest in business formation consulting in the San Diego area, especially if you’re unsure of whether you’re better off forming a sole proprietor/partnership or a corporation/LLC. There are, of course, many advantages to forming a corporation rather than a sole proprietorship or partnership. That is why so many business owners make this choice. It isn’t the right choice for every business, though. It’s important to understand the advantages and disadvantages of both options in order to make the best-informed decision.
Advantages of a Corporation/LLC
- Shareholders/Owners aren’t Responsible for Debts if a Corporation Runs Out of Funds – It’s important to note that there are a few exceptions to this rule. Those include situations with a sole shareholder and/or situations where personal funds are mixed with corporate funds, the corporation has insufficient insurance or capitalization, the corporation has failed to pay state taxes or broken other state laws or there have not been any shareholder/director meetings held.
- Tax Savings for Self-Employment – If you form a sole proprietor/partnership, your earnings will be subject to a 13.3% self-employment tax on the initial $106,800 of income. The salaries of corporate employees are taxed, but the profits are not taxed.
- It’s Easier to Transfer Ownership Interests – Owners or shareholders can sell their corporate interests to a third party without any disruptions, such as having to get new tax ID numbers, bank accounts, etc.
- Corporations Make More Money – With the options of selling shares of stocks and even creating new stock varieties, it’s easier to make money with less risk.
- Corporations Don’t Expire When Directors, Officers or Shareholders Pass Away
Advantages of a Sole Proprietor/Partnership
- Fewer Formation Formalities – It’s easier to set up a sole proprietorship or partnership. Corporations must file legal documents with the state and adhere to a stricter and more time-consuming set of rules. However, with professional business formation consulting in the San Diego area, the process of forming a corporation doesn’t have to be monumentally difficult.
- Formation is Cheaper – It costs quite a bit more to set up a corporation. A sole proprietorship or partnership, on the other hand, has lower initial filing and formation fees and lower state taxes.
- No Unemployment Insurance Required – Shareholders are required to pay unemployment taxes, but sole proprietors and partners are not. However, other types of business insurance are still required, regardless of the type of business formation you choose to set up.
For assistance with setting up your new business, give us a call at 866-631-3470 for a complimentary, initial consultation with one of our legal professionals.