Company registration and formation decision

Company registration and formation decision (LLC vs. S Corp vs. C Corp)

Lesson Details:
November 25, 2020

Video Transcription: Almost everyone who opens the business wonders well like which kind of a business entity should I have an LLC should I have a corporation if I do have a corporation should I be an S corp a C Corp that's exactly what we're gonna cover in this video and by the end of this video it should be very clear what you should do. This video is brought to you by Appy Pie Academy. let's start with then LLC all of these by the way they give you liability protection meaning if somebody Sue's you they're not suing you they're suing the company so you get to keep your car your house your finances your family's safe the business is the one liable that's the protection you get the other implication is tax implication we'll talk about through this video but that's the important thing the difference of should you do business as yourself without registering a company if you don't register a company people can sue you for your money directly if something goes wrong if you register a company you have that liability protection meaning they're no longer suing you they're suing the business and by the way also this is just for United States if you are in a different part of the world you might have similar legal structures in wherever you are but in every country it's different and I cannot obviously cover every country so I mean I'm based in the United States and most people taking this course in are in the United States so obviously this is for United States in your area make sure you talk to a lawyer before you register any business entity so let's get started so the advantage of an LLC is it's one of the more modern business entities it's something that's created more recently in the last few decades it's easy to set up it's very flexible there are relatively few management issues compared to a corporation it's good if you're not seeking outside funding some states impose a couple of additional requirements on them but generally they're easier to manage than corporations so they're good for small businesses and LLC itself does not get taxed so there is no double taxation in an LLC the LLC when it gets paid it doesn't get taxed the only time anybody gets taxed is when the LLC actually pays you salary which is actually good you don't want to get taxed twice this is the good case if you want outside funding like investors generally your options are the corporation S corp or C Corp we're going to talk about that shortly but for now let's continue with the LLC so if you're a single-member LLC meaning you have no partners you basically taxed like a sole proprietorship your taxes are very easy obviously we're not going to get deep into taxation because I'm not an accountant but you basically get taxed as a sole proprietorship which for our purposes now we're gonna understand this is the easy case your taxes are going to be relatively simple if you have more than one member in your LLC you're gonna get taxed as a pass-through corporation meaning that the company will just pay each member individually and the only taxes that happen is when each member is taxed individually which is the good case one of the great benefits of an LLC is that it doesn't have the double taxation few united states have an extra requirement which is publishing articles and over incorporation meaning like you have to publish that you've opened your company in the newspaper it's a waste of time it's a waste of money sometimes it costs a couple hundred dollars like New York State has this requirement a couple of other states have this requirement it's completely ridiculous requirement and it doesn't help your business oil is just a waste of time and money but it's a requirement that they have and if you don't want to do it it's a little bit of a decision because it's gonna cost you extra money and it's a waste of time this is the time that basically you're dealing with logistics of your company meaning you're not actually building your actual company you're not doing anything for building the product you're not doing anything for the you know growing the marketing so this is actually a kind of a waste of time and which companies is this good for well if you're gonna kind of stay a small business so like if you're opening a cleaning business a real estate business if you have a restaurant you're opening if you have a small website that's not gonna go big if you may be like in e-learning right like if I if you're creating an online course if you're doing affiliate marketing all those things generally you're gonna be an LLC it's perfectly fine now when do you started dealing with corporations let's start talking about S corp s Corp is also a pass-through tax entity meaning it doesn't get taxed when it gets paid the only taxes happen when the S Corp pays its shareholders in an LLC an owner is called a member in an S corp an owner is called a shareholder you can have in an in an S corp up to 100 shareholders meaning like it's not a company that's gonna go public right because it's only 100 shareholders and the shareholders can only be like you know United States citizens or holders of green cards or legal residents something like that and only individuals can hold chairs not other companies so again this is for mid-sized relatively small local companies that are not gonna seek investment you know you don't have dreams of becoming a fortune 500 company and again it's a pass-through tax entity that's very important now an C Corp that's if you want to be a fortune 500 company if you want to go public one day if you're that type of company obviously everybody wants and dreams that but some companies have that idea as a built-in like if you're the next Airbnb if you're in the next Dropbox if you're the next Ober like you have that great potential you you are gonna seek investors and so that's an ideal type of situation C Corp and by the way you can open as an LLC or an S Corp and then switch it to a c-corp later it's just an annoyance but it's possible to do also a c-corp can issue different classes of stock this is where you hear class a stock Class B stock preferred stock and you can have an unlimited number of shareholders so this is perfect for going public so anybody can buy your stock it does have double taxation so if you're a small company and you just want to save your money you want to avoid C Corp because whenever the company gets paid it gets taxed and when it pays out that their owners the shareholders it gets taxed so you lose money and like I mentioned there's multiple classes of stock that different shareholders can own and foreign ownership is allowed so those are the difference between an LLC C Corp and an S Corp now how do you actually register this business well don't run to register it now you still should talk to a legal professional maybe more than one you should get multiple opinions before you decide after you decide you can go to your Secretary of State website for your state every state has a different Secretary of State website all you have to do is just Google for Secretary of State in whatever state you're in and you file a certificate of incorporation there on the site and boom you are going to be registered there's going to be a fee every state differs in what field is it might be a hundred dollars it might be something else like I mentioned earlier some states have extra requirements meaning extra fees but generally that's going to be the process of deciding which entity is right for you and registering now there are some businesses that are not LLC not S corp or C Corp like a law firm that's a whole different business entity it's like an LLP so there are some industries that just have specifics attached to them that's why you need to get multiple opinions for multiple professionals and just get understanding of like okay this video was a general overview but now you need to look into the specifics of your situation maybe there are some unique things maybe you have extra licenses an actual requirements those are still things that you have to research further before deciding how to incorporate and after doing some research you might find that for your unique situation there might be some very common entity that is usually used but it's up to you to research your unique situation this video is just a general overview of what people generally do because it's impossible to cover all cases in a video like this.

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