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ONLINE BUSINESS FORMATION
Step 1 -- Determine entity type (LLC, S corporation, corporation, non-profit corporation)
ENTITY SELECTION QUESTIONNAIRE
DISCLAIMERS: The information below should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Further, any U.S. tax advice contained on this questionnaire was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
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Will your company be operated exclusively for tax exempt purposes such as for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals?
YES -- You can register your business as a tax-exempt or religious corporation. Please note that you must apply and be approved for actual tax-exempt status with the Federal and state governments and there are other requirements which must be met for such approval. Please call 301-805-5892 to speak with an attorney for more information on nonprofit corporations.
NO -- PROCEED TO NEXT QUESTION.
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Do you plan on taking your company public (selling stock in your company to the general public)?
YES -- You will need to register your company as a corporation.
NO -- PROCEED TO NEXT QUESTION.
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Is having the simplest company type with no Board of Directors, company minutes, or annual shareholder meetings, a higher priority to you than possibly saving taxes?
YES -- Registering your entity as an LLC will probably work best for you since LLCs are not required to keep as many corporate formalities as a corporation or S corporation such as having a Board of Directors, maintaining company minutes, or conducting annual shareholder meetings.
However, all profits from the LLC will be taxed as income to the individual member(s) at their individual income tax rate. If you register your entity as an S corporation and the company has profits greater than what you would receive in a reasonable salary from the entity for the work you perform, that additional profit would be distributed to the shareholders as a dividend, which is currently (as of 8/2006) taxed at the capital gains rate (approximately 15%) rather than at the shareholder's individual income tax rate (generally about 30%). For further information, please call 301-805-5892 to speak directly with an attorney.
NO -- PROCEED TO NEXT QUESTION.
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Do you anticipate the company making a profit greater than what the individual owners would receive in a reasonable salary for the work they perform for the company?
YES -- Registering your entity as an S corporation will probably work best for you because you will be able to take advantage of a significant tax savings by distributing profits beyond the salaries of the owners who are employees or officers of the company as dividends, which are currently (as of 8/2006) taxed at the capital gains rate (approximately 15%) rather than at the shareholder's individual income tax rate (generally about 30%).
NO -- Registering your entity as an LLC will probably work best for you since you will not benefit from the dividend tax rate if the profits of the company are distributed as salaries, which will be taxed at the individual income tax rate. Further, LLCs are not required to keep as many corporate formalities as a corporation or S corporation such as having a Board of Directors, maintaining company minutes, or conducting annual shareholder meetings.
Click here to see more information on these and other entity types
This website is designed for general information only. The information presented on this website should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
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