ESYB2 079 - Company Registration and Formation Decision
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[00:00:00] Almost everyone who opens a business wonders, well, like which kind of a business entity should I have? Should I have an LLC? Should I have a corporation? If I do have a corporation, should it be an S corp, a C corp? That's exactly what we're going to cover in this video. And by the end of this video, it should be very clear what you should do.

Let's start with the LLC. All of these, by the way, they give you liability protection. Meaning if somebody sues you. They're not suing you, they're suing the company. So you get to keep your car, your house, your finances. The business is the one liable. That's the protection you get. The other implication is tax implication.

We'll talk about it through this video, but that's the important thing. If you don't register a company, people can sue you for your money directly, if something goes wrong. So if you register a company, you have that liability protection. And by the way, also, this is just for United States. If you're in a different part of the world, you might have similar legal structures, but in every country it's different.

And I cannot obviously [00:01:00] cover every country. So I'm based in United States and most people taking the discourse and are in United States. So obviously this is for United States in your area. Make sure you talk to a lawyer before you register any business entity. So let's get started. So the advantage of an LLC.

is it's one of the more modern business entities. It's something that's created more recently in the last few decades. It's easy to set up. It's very flexible. There are relatively few management issues compared to a corporation. It's good if you're not seeking outside funding, some States impose a couple of additional requirements on them, but generally they're easier to manage than corporations, so they're good for small businesses.

If you're a single member LLC, meaning you have no partners, you're basically taxed like a sole proprietorship. Your taxes are very easy. Obviously, we're not going to get deep into taxation because I'm not an accountant, but your taxes are going to be relatively simple. If you have more than one member in your LLC, you're going [00:02:00] to get taxed as a pass through corporation, meaning that the company will just pay each member individually.

And the only taxes that happen is when each member is taxed individually. One of the great benefits of an LLC is that it doesn't have the double taxation. Few states have an extra requirement, which is publishing articles over incorporation, meaning you have to publish that you've opened your company in a newspaper.

It's a waste of time. It's a waste of money. Sometimes it costs a couple hundred dollars, like New York State has this requirement. A couple of other states have this requirement. It's a completely ridiculous requirement. It doesn't help your business at all. It's just a waste of time and money. You're not actually building your actual company.

You're not doing anything for building the product. You're not doing anything for growing the marketing. So this is actually a kind of a waste of time. And which companies is this good for? Well, if you're going to kind of Stay a small business. So like if you're opening a cleaning business, a real estate business, if you have a restaurant you're opening, if you have a small [00:03:00] website that's not going to go big, if you're creating an online course, if you're doing affiliate marketing, all those things generally, you're going to be an LLC.

It's perfectly fine. Now, when do you start dealing with corporations? Let's start talking about S Corp. S Corp is also a pass through tax entity, meaning it doesn't get taxed. When it gets paid, the only taxes happen when the S Corp pays its shareholders. In an LLC, an owner is called a member. In an S Corp, an owner is called a shareholder.

You can have in an S corp up to 100 shareholders, meaning it's not a company that's going to go public because it's only a hundred shareholders. And the shareholders can only be like United States citizens or holders of green cards or legal residents. And only individuals can hold chairs, not other companies.

So again, this is for midsize, relatively small. local companies that are not going to seek investments. You don't have dreams of becoming a Fortune 500 company. [00:04:00] And again, it's a pass through tax entity. That's very important. Now, and. C corp that's if you want to be a Fortune 500 company, if you want to go public one day, if you're that type of company, obviously everybody wants and dreams that, but some companies.

Have that idea as built in, like if you're the next Airbnb, if you're the next Dropbox, if you're the next Uber, you have that great potential, you are going to seek investors, that's an ideal type of situation, C Corp. And by the way, you can open as an LLC or an S Corp, and then switch it to a C Corp later.

It's just an annoyance, but it's possible to do. Also, a C Corp can issue different classes of stock. This is where you hear Class A stock, Class B stock, preferred stock. And you can have unlimited number of shareholders. So this is perfect for going public. So anybody can buy your stock. It does have double taxation.

So if you're a small company and you just want to save your money, you want to avoid C [00:05:00] Corp because whenever the company gets paid, it gets taxed. And when it pays out the owners, the shareholders, it gets taxed and foreign ownership is allowed. So those are the difference between an LLC, a C Corp and an S Corp.

Now how do you actually register this business? Talk to a legal professional, maybe more than one. You should get multiple opinions before you decide. After you decide, you can go to your Secretary of State website for your state. Every state has a different Secretary of State website. All you have to do is just Google.

For secretary of state in whatever state you're in and file a certificate of incorporation there on the site and Boom, you are going to be registered. There's gonna be a fee every state differs in what fee it is It might be 100. It might be something else. Some states have extra requirements meaning extra fees but generally that's going to be the process of deciding which is Entity is right for you and registering.

Now, there are some businesses [00:06:00] that are not LLC, not S corp or C corp, like a law firm. That's a whole different business entity. It's like an LLP. So there are some industries that just have specifics attached to them. That's why you need to get multiple opinions from multiple professionals and just get understanding of the specifics of your situation.

Maybe there are some unique things, maybe you have extra licenses and extra requirements. Those are still things that you have to research further before deciding how to incorporate. And after doing some research, you might find that for your unique situation, there might be some very common. Entity that is usually used, but it's up to you to research your unique situation.

This video is just a general overview of what people generally do because it's impossible to cover all cases in a video like this.

