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The Difference Between an S-Crop and a C-Corp

by | Mar 1, 2023 | Start Here

As your business expands, Incorporating your business can secure assets, present tax breaks, and attract investors. But forming a corporation takes more than filing articles of incorporation. The Internal Revenue Service (IRS) requires that corporations to choose one of two tax structures. The right choice isn’t always obvious when weighing an S corp vs. a C corp.

C corporation and S corporation designations are both strong choices. While they have some similarities, they also have some crucial differences. Before you make your decision, ensure you understand the pros and cons of each option. That way, you can rest assured you set up your corporation for success.

What is an S-Corp?

An S-Corp is a business structure permitted under the tax code to pass its taxable income, credits, deductions, and losses directly to its shareholders. An S-Corp prevents your business from incurring corporate double taxation. To become an S-Corp, your business must first be registered as a C-Corp.
In an S-Corp, the business owners are called Shareholders. In this structure, the business owners are employees, and you must pay yourself a reasonable salary. To qualify as an S-Corp, your business must have 1-100 shareholders, be in the United States, and file with the IRS.

Pros of an S-Corp:

  • Tax Benefits: Business owners do not have to pay federal taxes at the corporate level. Business owners don’t have to pay accumulated earnings tax. 
  • Employee income: Shareholders can work as employees and receive a salary.
  • Transfer of Ownership: Shareholders can transfer their interest without tax consequences.
  • Credibility: S-Corp status may help establish credibility with customers, clients, suppliers, or investors.

Cons of an S-Corp:

  • IRS Scrutiny: The IRS scrutinizes how S-Corps pay their employees because they can disguise salaries as corporate distributions to avoid paying payroll taxes.
  • Taxes on benefits: Most corporate benefits are taxable as compensation to employee shareholders who own more than 2%. 
  • Stock Restrictions: They can only have 100 shareholders and only one class of stock, although they can issue both voting and non-voting shares.

What is a C-Corp?

A C-Corp is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C-Corps are the most common type of corporate structure in America. Within a C-Corp, the business is taxed separately from the business owner(s). They ensure that the business owner(s) are not held personally responsible for business debts or lawsuits.
C-Corps are owned by shareholders, each who owns stock in the company. Other structures limit the number of shareholders, but C-Corps can have unlimited investors.

Pros of a C-Corp:

  • Liability protection: This business structures limited liability and ensures that the business owners are not held personally responsible for business debts and/or lawsuits.
  • Tax advantages: This type of business structure can deduct more tax expenses.
  • Raising Funds: Due to the unlimited number of stakeholders this structure can hold, they will have an easier time raising money if needed.

Cons of a C-Corp:

  • No Personal Write-Offs: Investors can’t write off business losses on their personal income taxes.
  • Double Tax: This type of business structure ensures that the business is taxed separately from the business owners, which means that the business owners are taxed TWICE.
  • C-Corps are subject to greater regulation than other business structures, incurring higher legal fees.

    Should you have further questions regarding which is best for you, given your circumstances, you should speak with your CPA.

     

     

    C-corp vs. S-corp Diagram

    How to Setup an LLC

    by | Feb 12, 2023 | Start Here

    Forming an LLC, or Limited Liability Company, is a way to protect your assets from debts and liabilities that may arise from your business. It is also a great way to ensure that your business operating legally. It can be a complicated process, but with the proper guidance, you can easily set up an LLC and get started on the path to success.

    Steps for setting up an LLC:

    1. Choose your business name:

    Choosing a business name can be the most challenging part of starting your business. Not only do you want your business name to be unique you also need to make sure it meets state requirements. You must review your state’s LLC requirements when deciding on a name. After coming up with a name(s), you need to check to make sure that another business is not using the business name in your state. If you need help creating a business name, check out Namelix!

    2. Choose a registered agent:

    Now, you need to designate a registered agent for your business. This could be you or someone else (make sure this person is at least 18 years old). Whoever you choose will be responsible for accepting legal documents on behalf of the LLC. Often you can google your state and Registered Agent, and then you will find one in your state; for example, Virginia Registered Agent.

    3. Prepare the LLC Articles of Organization form & File articles of organization:

    Every state will have a list of requirements you need to file the articles of organization. You can find this information on the website you reviewed your state’s LLC requirements. Here is the essential information you need:

      1. Business name
      2. Your business address
      3. The purpose of your business
      4. The way you plan to manage your LLC
      5. Registered agent’s contact information
    The articles of organization form will be how you establish your LLC as a legal entity. Once you have compiled all the articles of organization based on your state’s requirements, you are ready to file!

    4. Create an operating agreement:

    An operating agreement is an internal document that details the financial, legal, and management rights of all members of the LLC. This agreement should include how profits and losses will be distributed, how decisions will be made, how members leave the LLC, and who contributes capital to the business. Although many states do not require an operating agreement, having one is always a good idea.

    5. Obtain any necessary licenses and permits:

    Depending on the type of business you are starting, you may need to obtain specific licenses and permits to operate legally. The licenses and permits you may need to operate your business depend on your state and the services you will be performing or providing. Be sure to check your state’s official website for more information.

    6. Get your Employer Identification Number (EIN): 

    Obtaining an EIN is essential for anyone looking to start an LLC. Having an EIN that separates your business entity and assets from your personal finances is crucial. You should get an EIN as soon as you set up your business, and it’s free to do on on the IRS.gov website.

    7. Open a business bank account:

    Once you have legally set up your LLC and obtained an EIN, set up a business bank account. It is important to keep your business finances separate from your personal finances. A business bank account will allow for easier expense tracking and tax filing.

    For anyone looking to start an LLC, please review your state’s LLC requirements, as every state has different requirements. I hope this information helps you and your business.

    5 Signs you Need an Online Business Manager

    by | Feb 5, 2023 | Human Resources

    Are you wondering if you should hire an Online Business Manager? Here are five tell-tale signs that it may be time for you to add an OBM to your team.

    1. Your Business is Growing While Your Own Free-time is Shrinking

    I’m betting you started your business to create more freedom in your life—freedom of time, money, and choice. Let me ask you – as your business grows are you working more or less time? If you are on the ‘working more time’ side of things, you certainly aren’t alone… I can’t count how many times I’ve talked to business owners who work more hours in their own business than they ever did in their ‘old job.’

    However, it doesn’t have to be this way – as a business owner, you have the freedom to make changes in your business, including hiring the right help to get stuff off your plate. This is precisely what an Online Business Manager does – their focus is to free up the business owner (you!) so that you can focus your time and energy on the things that only YOU can do in your business.

    2. You Have to Turn Away Opportunities Because You Are Busy

    This is an unfortunate by-product of the first point. Are you so busy that you can’t take advantage of the opportunities coming your way? Do you ever find yourself saying, “I would love to do X and know it would be a great new offer… but I simply don’t have the time for it right now” 

    An Online Business Manager can help free up your time to explore these opportunities, and they can also work on bringing some of these opportunities to life for you! An Online Business Manager can help manage processes, develop and implement new strategies and policies, and have projects and offers come to life from the concept stage to the launch.

    3. You are still doing the same things you were doing when you started your business

    Remember when you first started your business and had to wear many hats? You were the cook, hostess, waitress, and busboy (so to speak). Now that your business is growing, are you still doing the same things as you did in the beginning?

    • Are you still updating your own website?
    • Are you still sending out your own broadcasts?
    • Are you still answering all your customer service emails? As your business grows, your role will (and should!) change.

    An Online Business Manager can lovingly ‘slap your wrist’ when it comes to you doing some of these things… helping you let go of some of the ‘old’ stuff taking up your time that gets in the way of growing your business.

    4. You Have a Great Team, But Find Yourself Frustrated By Them Always ‘Bugging’ You

    This is a very common complaint from business owners – they have a great team of virtual assistants, techie folks, and such. And yet they are constantly frustrated by how much their team needs from them. They feel like someone is constantly tapping them on the shoulder with a question or request. The thing is, your team does need someone to manage them. They need someone they can turn to with questions to get what they need to complete their projects quickly and on time. And who do they turn to if there is no Online Business Manager on the team? You – the business owner.

    A fellow business owner once said: “My VAs were doing a fine job – it was ME who was unhappy managing them.” Most business owners don’t enjoy being managers; I’m guessing this may be the same for you. An Online Business Manager becomes your team’s key point of contact – all questions, requests, and such go to the OBM instead of you.

    5. You Are Stuck at $X Revenue and Can’t Get Past that Point

    When you find yourself stuck at a certain point in revenue, there is usually one thing getting in the way – you! This is often referred to as the quarter-million-dollar speedbump (it can be more or less than that, of course). A big part of the solution usually requires you to remove yourself from your business’s day-to-day activities and management.

    Start to ask yourself as you go about your day – do I need to be the person to do X? (with X being the many things you spend your time on each day.)

    Chances are, many things on your to-do list could be passed along to someone on your team. And an Online Business Manager can help with that process by delegating and managing those tasks on your behalf. In short, once you:

    • have hit 6-figures in revenue
    • have a clear vision & goals for your next level of growth and
    • are ready to step into being the CEO and have someone else run the business for you

    …then you are prepared to hire an OBM.