Best Business Formation Services to Launch Your New Business

Business formation is the process of legally establishing a business in a particular country, state, or county. It involves choosing a business name for the new venture that you’re starting and determining the business entity that you want.

Post that, the business formation process moves to the filing stage where you’ve to prepare the required documents and submit them to your Secretary of State’s office. Finally, in the last stage of the formation process, you receive your company formation documents and can start operating your business.

There are four main types of businesses that you can form in the United States when you want to get started. They are:

• Sole Proprietorship/Doing Business As: This structure has the simplest formation process. You can easily start a Sole Proprietorship and run it under your name. If you want to change the name of the entity, you can file for a Doing Business As (DBA) and select a fictitious name for your new business. You’re the only owner in this case and can’t have any partners.
• Limited Liability Company (LLC): This business structure allows you to start a business with multiple owners (called members) and provides you with great features like limited liability, no double taxation, and more. This means you’ll never be personally liable for any business debts. The business formation process is slightly longer here though as it’s a formal business structure.
• Corporation: The most formal business structure there is, the formation process for Corporations is the toughest and longest. However, they offer the best liability protection, and it’s the right structure to choose if you want to scale your business in the future. With Corporations, you can issue shares, go public, and raise funds. You can choose between two forms of Corporations—S-Corporation and C-Corporation. However, with C-Corporations, you’re subject to double taxation and they’re the only ones that can have an IPO.
• Non-Profit: This business entity is the right choice if you want to give back to society while saving up on taxes. Unlike other business entities, Non-Profits have a different formation process and exist for purposes other than generating profit. No part of the business income is distributed to the owners, directors, or officers. Under 501(c)(3) status, all Non-Profits are exempt from federal income taxes. That said, just like LLCs and Corporations, Non-Profits have liability protection too.

LLCs and Corporations are both legal business entities that are separate from their owners, unlike Sole Proprietorships. Both these structures offer their owners liability protection, meaning they’ll not be held personally liable for any business debts (personal assets secured).

Similarly, both structures can have one or more owners (called members for LLCs and shareholders for Corporations). However, the key difference lies in double taxation and fundraising.

Corporations are subjected to double taxation, meaning the business pays corporate taxes, and the shareholders pay taxes on their dividends. In LLCs, the members only pay taxes on their share of profits. But when it comes to fundraising, Corporations have the upper hand as investors prefer them, and they can have IPOs too.

Their formation processes are different too. LLC formation involves Articles of Organization while Corporation formation involves Articles of Incorporation.

LLCs, Corporations, and Non-Profits are the three business entities that provide liability protection to the owners. All these entities are separate from the owners and are treated as legal entities. As a result, the owners’ personal assets can’t be used to pay off the liabilities accrued by the business. This makes them perfect for businesses of larger sizes.

This, however, isn’t the case with Sole Proprietorships where the owner is solely responsible for all the business debts and legal obligations. In this case, the owners’ assets can be used to pay off business liabilities, making it a better fit for smaller businesses. When you’re planning to go about business formation, consider this difference.

While both these entities are Corporations, there’s a difference between them and their business formation processes. In terms of similarities, both require Corporate Bylaws and filing of Articles of Incorporation.

As mentioned before, C-Corporations are subjected to double taxation, but S-Corporations are not. This means that the owners of S-Corporations only pay taxes on the dividends they receive.

In addition, S-Corporations have a limit on the number of shareholders that they can have at 100. However, there’s no such restriction when it comes to shareholders for C-Corporations. LLCs can also choose to get taxed as S-Corporations to save on self-employment taxes.

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