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BizIPEsq.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience:  I am a business attorney. I represent individuals and companies with all business related matters.
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I want to start a subscription business in California, but

Resolved Question:

I want to start a subscription business in California, but I'm not sure under what legal structure I should file it: LLC, Sole P, C-Corp or S-Corp. A lot of the differences seem very technical and I just want to go with the easiest and safest way to file that protects myself. Eventually I may have employee's but in the beginning it will be just myself working on it.

Thank you
Submitted: 1 year ago.
Category: Business Law
Expert:  BizIPEsq. replied 1 year ago.

BizIPEsq. :

Hello, I will be assisting you

BizIPEsq. :

Here's a brief over view of the various options:

BizIPEsq. :

Sole P - does not provide any liability protection. In effect a sole proprietorship is just you conducting business

BizIPEsq. :

c-corp has a double taxation issue (the corp is taxed on profits and then the shareholder is taxed on dividends)

BizIPEsq. :

c-corps are good if you will be fund raising for your company

BizIPEsq. :

you are left with LLCs and s-corps. Both are pass through entities meaning that the entity is not taxed and all profit and losses flow to the principals (no double taxation)

Customer:

Hi, thank you for the info. Ok well initially I may not be getting an investment initally so it seems best that I file under LLC or S-corp

Customer:

I would think?

BizIPEsq. :

correct. LLCs are good if you have more than one person or in the case of a husband and wife more than the couple

Customer:

Ok how about LLC's and S-corp what would be that major difference?

BizIPEsq. :

otherwise as a one member LLC you have to pay social security+ Medicare tax and it's not deductible

BizIPEsq. :

woth s-corps are you can issue yourself a reasonable salary and be taxed at ordinary income level and then take the rest as dividend taxed at capital gain (lower rate than ordinary income)

BizIPEsq. :

typo: with s-corps...

Customer:

Then why would anyone pick c-corp over s-corp or LLC? because a couple similar companies filed under c-corp and im trying to figure out why. is it for them to get an investment?

BizIPEsq. :

be mindful that non-use residents cannot be shareholders in an s-corps and you are limited to 100 shareholder.

BizIPEsq. :

because funds and other investors cannot invest in LLC (they cannot accept losses as a distribution) Also as an LLC you don't get stock you get a membership interest.

BizIPEsq. :

corporate law favors c-corps

Customer:

I see. so in order for you to get an investment it must be c-corp?

BizIPEsq. :

if it's from a fund then most of the time yes. If it's a private investor then LLCs and any flavor of corps works

BizIPEsq. :

one other important distiction between s-corps and c-corps is that with an s-corp you can have only one class of shares

BizIPEsq. :

c-corps can have unlimited classes of shares

Customer:

I see. what do you recommend in order for me to decide which option best fits the business I want to start?

Customer:

ok got that

BizIPEsq. :

generally if it's one person then s-corp work. If you have partners or plan to have partners immanently then these days most choose LLCs

Customer:

ok well it's going to be me for now and eventually I may have partners or more employee's. So you recommend it being filed under LLC?

BizIPEsq. :

as noted with one member LLCs you will be paying the highest tax rate in your tax bracket because the social security and medicate taxes are not deductable

BizIPEsq. :

if you're not planning on making a whole lot then it's not going to matter

BizIPEsq. :

all that much

Customer:

Ok well I don't want to sell myself short :) I hope I do make a lot. If you had to recommend one option what would it be....

BizIPEsq. :

it's difficult to say because right now an s-corp would probably work for you but if you want to add someone that only has a profit share as an example then an s-crop will not work. here's how to decide: if future flexibility is really important to you then choose an LLC if you don't have a clear plan on how the future might look like then go with an s-corp

BizIPEsq. :

as you can see there are lot of moving targets to consider here...

Customer:

very!!

Customer:

and you can convert the legal structure right?

Customer:

lets say if I chose S corp

Customer:

and wanted LLC?

BizIPEsq. :

most jurisdiction allow for "conversion"

BizIPEsq. :

actually what you could do is start an LLC and choose to be taxed as an s-corp

BizIPEsq. :

it's something new that the IRS instituted a few years ago. You should check this option with your accountant

Customer:

where would I determine to be taxed as an s-corp

BizIPEsq. :

it might be the best of both worlds

BizIPEsq. :

it's an election you would make with the IRS

Customer:

ok if not then I can pick LLC and convert later or vice a versa

BizIPEsq. :

correct

Customer:

I got it

Customer:

thank you for the info :0

Customer:

:)

Customer:

really appreciate it

BizIPEsq. :

sure thing

BizIPEsq. :

please rate my answer

BizIPEsq. :

without your rating I do not get compensated for my work

Customer:

absolutely

BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience: I am a business attorney. I represent individuals and companies with all business related matters.
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