What is the best type of corporation for my small businessI

I want incorporate my sole proprietorship, with an eye towards future growth. I am a paralegal/legal document preparer and have about 25 clients in any given week. I use my owb n SSN and bank account for bookkeeping. I think, after research, an ‘ordinary’ corporation would be best, but i’d like another line of thought.

Asked on May 3, 2016 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Actually, an "ordinary" corporation (a C-corp) subjects your income effectively to double taxation: it as first taxed as corporate income (as the corporation's own income), then secondly, when you take a distribution or are paid dividends, they are taxed as part of your income. For a small business, with one or a limited number of owners, a better choice is either an S-corp or an LLC: both of them are "pass through" entities, which means the profits "pass through" the entity and are only taxed once, as part of your personal income. They also both offer the same protection from liabiltiy as an "ordinary" corporation. In terms of choosing between the two, there is little to choose between: an LLC involves somewhat less paperwork, formalities, and reporting, while an S-corp makes it a little easier to sell interests or portion of the business in the future to other people, by simply selling shares of stock.


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