Choosing a Business Structure, Part 3: Pros and Cons of S Corporations
This article is continued from Part 2: Pros and Cons of Sole Proprietorships.
When it comes to choosing a structure for your startup business, an LLC or a sole proprietorship will almost certainly be the right initial choice for you. You will be working alone and your income will be quite minimal until you have established a client base and started performing multiple jobs each day.
As your business grows, however, you may find that these things change quickly. If your service becomes large enough that you need multiple employees to handle your workload and that you maintain multiple offices, you may want to consider the formation of an S corporation.
An S corporation is a domestic corporation that has a single class of stock. The business will only allow individuals and estates to be shareholders and will pass all income, losses, credits, and deductions to shareholders at tax time.
This is a great way to allow others to become equal or percentage based partners in your business. When you choose this method of business formation, you will also find that all shareholders claim income and losses at their standard personal tax rates.
This ensures that there is no double taxation on business income.
The downside of becoming an S corporation is that all of your shareholders can become liable in the event of a major loss or lawsuit. You will also want to consider the fact that you may be required to pay estimated taxes in advance in order to cover money that the government feels you will owe by the end of the year.
An S corporation is a rare choice for people starting a courier business, but it can certainly be a viable option. If you are undecided which option might be best for you, then you are advised to contact a legal professional to learn more about your options.