Phoenix Small Business Attorney

Selecting the appropriate organization for your small business depends on several crucial factors, including the number of owners involved, desired liability protection, tax implications, management structure, and long-term objectives. Common options to consider are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Seeking guidance from an attorney or business advisor will assist you in assessing your needs and making an informed decision.

To establish your business, you typically need to file specific legal documents with the state. These may include articles of incorporation for corporations, articles of organization for LLCs, and partnership agreements for partnerships. Depending on your business structure and state regulations, additional filings might be necessary.

To form a corporation, you generally need to choose a unique business name, file articles of incorporation with the relevant state authority, issue stock to shareholders, and create bylaws governing internal affairs. Consulting an attorney streamlines the process and guarantees compliance.

While LLCs offer numerous advantages, there are a few drawbacks to consider. Some common disadvantages include potential self-employment taxes on all income, limited options for raising capital through stock issuance, additional administrative requirements compared to sole proprietorships, and potential variations in state laws and regulations governing LLCs.

While a comprehensive explanation requires more than a paragraph, in short, both corporations and LLCs provide personal asset protection when formed and operated correctly. Corporations generally have more formal requirements, such as annual meetings and minutes. Conversely, LLCs offer more flexibility in structuring profit allocations.

Operationally, the two corporations are the same. The only difference is how each entity is taxed. A C corporation is subject to double taxation, where the corporation is taxed once on its profits, and then if any shareholder dividends are issued, the shareholders are then taxed on receipt of those dividends (even though that money has already been taxed once on the corporate level).

With an S corporation, however, all of the profits and losses of the corporation flow down to the shareholder level where the money is only taxed once. Not every corporation can qualify to be an S corporation. For example, the corporation must have less than 100 shareholders, it must only have one class of stock (i.e., you cannot have common and preferred shares), and, generally speaking, every shareholder must be an individual or qualified trust (no entity ownership). There are additional rules and restrictions that apply.