What type of business should I register as?

My wife and I want to start a coffee company where we are selling roasted coffee
beans out of our home via an online shop. Should we be setting up an LLC, S-Corp,
or Partnership? It would be great to limit our liability since we are mailing a
‘food’ item through the mail but I would also love to not have so much red-tape
as far as taxes and the actual paperwork goes.

What would you suggest?

Asked on May 5, 2016 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

To limit liability, you need to be an LLC ("limited liability company") or a corporation. For a small business, you want to be either an LLC where you elect "partnership" or "pass through" taxation or an S-corp: both will allow you to avoid double taxation of profits (being taxed once, at the business level, then taxed again when you take a distribution or dividends; instead, all profits and losses pass through the entity to your personal taxes and are taxed only once).
There is little to choose from between an LLC or S-corp. An LLC requires somewhat less paperwork formalities, and reporting, and allows you to have ownership percentages not based on direct economic investment (if you have more than 1 owner, with differing investments); an S-corp will be easier in the future, if you feel you may wish to sell shares of the company to other people. Personally, I prefer LLCs, and my own small businesses are LLCs.


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