Forming a Company

After taking an idea to building a team and developing a product, you ‘the Entrepreneur’ needs to begin thinking about what type of company you would like to start out with.  Here is a guide on the different types of incorporations:

Sole Proprietorship
-    There is no federal or state registration
-    DBA: ‘Doing business as’
-    EIN: ‘Employee Information Number’ --  Business’ social security number
-    No liability protection
-    Taxes on your personal net income

Partnerships
-    Similar to SP but with multiple individuals
o    Still no liability protection & taxed at the personal level
-    Should have a partnership agreement
-    General Partnership: everything is 50/50
-    Limited Partnerships: on the fundraising side – in the capacity of the “silent partner(s)” they put in money but don’t want to be involved in any other way

Limited Liability Company (LLC)
-    State registration is required – need to notify the sate that you’re doing business
o    Filing fee associated to it: $525 in MA
o    Advise to have an EIN
-    Provides liability protection – can’t go after personal assets only company assets
-    Flexible in ownership and management
o    Based on ownership percentages, no shares that are not distributed
o    Managers vs. employees
-    Pass-through taxation: taxed at individual level, not as separate entity (it’s an option)

C-Corp
-    Most involved entity structure: stock trading
-    Separate entity apart from the individual
o    State registration required: $250
o    EIN
-    Ownership and Management structures are based on the entities decision
-    Liability protection
-    Need to have shareholder and board meetings
-    Double Taxation: Taxed at when a company brings in money and then at the personal level

S-Corp
-    Similar to C-Corp, but with ownerships restrictions:
o    Number of owners (less than 100)
o    U.S. Citizens or Residents only – doesn’t matter where you are
o    No company ownerships  - cant be a company
IF you violate any of these restrictions, you lose that position and are treated as a C-Corp
-    IRS election on top of State filing
-    Pass-through taxation, like an LLC

All states and sometimes towns have their legistration, so please check with your local branch.

If you have any other questions, send me an email or post a comment.
Ashkan

Ashkan[at]greenhornconnect[dot]com