A new business startup can be very exciting, especially if it is yours. Like most new business owners, you want to plan every detail for success. There are legal aspects of your business you should always consider, including incorporation.
The state of Oregon offers options for sole proprietors, including business incorporation. There are also legal options for general partnership, business partnership and nonprofit organizations.
An S corporation offers several advantages for business owners. An initial C corporation can switch to an S corporation with the consent of all shareholders. Benefits of an S corporation include the potential to avoid certain corporate taxes. Additionally, S corporations are beneficial when a corporation experiences business loss. This is not uncommon during the first few years after opening.
A limited liability company, or an LLC, offers specific protection for business owners. LLC is a corporate structure in which owners are not held responsible for business debts. This is helpful in the event of business failure. An owner’s death or bankruptcy will impact an LLC. This may force dissolution unless a continuation agreement is in place. A corporation, by contrast, can continue to exist under those scenarios.
Sole proprietorship is a simpler unincorporated business category. A sole proprietor is responsible for reporting and paying income tax on all profits earned. Sole proprietorship is a popular option for contractors, consultants and other self-employed individuals. This business plan is appealing to startup entrepreneurs with long-term goals. Sole proprietors often convert to an LLC as their business grows.
The negative impacts of remaining unincorporated are worth noting. A sole proprietor must assume responsibility for any business liability. Likewise, the owner assumes all the business debts.
Make an informed decision to protect your investment. Consider the tax advantages for each option. Ensure your legal business status is part of your business plan and you will be off to a good start.