Tips from the Hub Incubator: Incorporating
Choose the Right Business Structure
Quick Guide
Register as a "Doing Business As" (DBA) if
- You have started spending money on the business, or
- You want to protect your brand.
Upgrade to a Limited Liability Company (LLC) if the above apply and
- You want to protect your personal assets from liability created by the business,
- You want the business to outlive you, or
- You have a partner.
Register as an S-Corp if, in addition to the above,
- You're turning a profit
- The company will be managed by someone other than the owners, and
- You will have fewer than 100 owners.
Instead of an S-Corp, register as a C-Corp if
- You need more capital and therefore more owners, or
- You prefer to keep your personal and corporate taxes separate.
Finally, consider a B-Corp instead of a C-Corp if
- You want to restrict the corporation's goals by a "public good" mission in addition to considerations of profit.
Types of Structures
A Legal Company
As soon as you start operating as a business, you need to protect your brand, start banking as a business, take advantage of business breaks in the tax code, and generally identify your business. This means registering your business.
When you register, you'll need to choose a specific business structure. This choice determines where and how you register, how much it costs to register, what legal liability protection you have, how you file taxes, and more.
DBA or Sole Proprietorship
You can start protecting your brand name and your business with a Doing Business As, or “DBA,” entity. It’s cheap and easy to register with your county clerk, and many counties have online registrations.
LLC
Before starting to put product in the hands of people outside your company or delivering services to customers, reorganize and register as a Limited Liability Company (LLC). Unlike DBAs, LLCs allow you separate your personal assets from your business assets, protecting you in case your business gets sued. LLCs are registered with your state (usually the Secretary of State), and require a little more cost and paperwork than a DBA, but they’re well worth the extra effort. LLCs are usually taxed as a part of your individual tax filing, and profits from the business count as personal income. The IRS provides an option to tax LLCs the same as C-Corps for federal tax purposes, and this may be worth the extra work at tax time in certain cases.
S-Corp or C-Corp
As soon as you start turning a profit, it’s time to reorganize as either an S-Corp or a C-Corp to protect your assets and limit your business taxes. Both S-Corps and C-Corps are taxed as businesses, so tax filings are separate from individual filings, and treat management as employees for tax purposes.
501(c)3, L3C, Benefits Corp, B-Corp
Other classifications and certifications may be worth the effort and added restrictions in specific situations.
A Helpful Tool
We think this free, online tool can be a big help in choosing the right structure for your business.
How We Help
We've been there, we have contacts who are experts, and we'll work with you to figure out the best structure for where you're at in your business journey.