Deborah Sweeney, CEO of MyCorporation, a provider of online document filing services, answers questions on business incorporations.
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The Story Exchange (TSE): How should a first time entrepreneur choose which business formation is the best fit for their business?
Deborah Sweeney (DS): Your business’s structure should be chosen based on your particular needs. When creating your business, you have four basic entity types you can choose to use. Each one has its advantages and disadvantages, based on what you sell, your business’s finances, and the number of owners the business will have.[pullquote]Deciding what type of entity you should form is not something to be taken lightly.[/pullquote]The questions to ask yourself: What type of business do you run? How many owners do you have? What is your financial situation? There is no one choice that suits every single business: Business owners have to select the structure that best fits their needs.
If your plan is to go public, you may exclude an S-corporation, which limits ownership to under 100 shareholders. If you do not want to pay both corporate and personal taxes, you may consider an LLC, which has pass-through taxation like a partnership. It is important to realize that corporations (S-corps and C-corps), as well as LLCs, offer personal liability protection and certain tax benefits. It’s also important to note that your entity formation is not necessarily forever. If for some reason, you decide to file an s-corporation election after you have been in business as a C-corporation, you can do that and then be taxed as a partnership. You can also convert to an LLC from a corporation.
Deciding what type of entity you should form is not something to be taken lightly – it’s important to discuss implications with an accountant. However, many business structures change over time, so you may make a decision to convert your entity when the situation changes.
TSE: Since you work with so many small business owners, what common mistakes do you see them committing when they go through the business legal filings?
[pullquote]Many business owners forget to file their annual report, thereby putting their business into bad standing. [/pullquote]
DS: Many business owners forget to file their annual report, thereby putting their business into bad standing. It’s unfortunate because the business works hard to form and establish itself, pay the franchise tax fees, etc., but forgets to file the annual report. This can be an issue because then the business has to reinstate and potentially pay penalties. Businesses need to make sure they stay on top of the annual filings, or appoint a company to help them do the filings in a timely fashion.
TSE: In your 1,000 Stories submission, you said that your biggest success was being able to purchase the MyCorporation division out of Intuit. How were you able to broker that deal? What gave you the confidence to make this bold move?
DS: I was able to work with the incredible Intuit team to effectuate a smooth transfer of the assets of MyCorporation. It took my entire team and the team at Intuit to make it go smoothly, but I believed in our ability to be successful outside of Intuit. Having had the learnings from the corporate environment, we were able to leverage that experience and combine it with our nimble, entrepreneurial origins. We were confident that the transition would be exciting and challenging, but we knew the company would be successful in the end. We had a strong foundation, a great team and customers that kept coming back. We had a good formula and great ideas. We were so fortunate to have our entire team transition with us and to be able to land softly in our own entrepreneurial environment. It was an exciting first year, but we have not looked back and continue to grow as a company.
ABOUT DEBORAH SWEENEY
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.