2

I'm considering starting a business in the state of Rhode Island in the USA. I've begun to do the research on options available to me, and it's clear already that there is a dizzying array of options for which legal business entity to choose for my business.

For example,

  1. C corporation
  2. sub-S corporation
  3. Limited Liability Company (two options here, one where the company income is treated the same as my own personal income with regard to federal and state income taxes, and the other where the company income is treated separately from my own personal income)
  4. Co-op
  5. others?

For anyone that's already been down this road, please offer some specific factors to consider in choosing the right legal business entity in RI for a consulting firm with two options: (1) no anticipated retail sales at all, (2) a small amount of retail sales with most income anticipated to be only from professional services rendered.

For example, my accountant tells me that if I expect to have more than 10 employees then a sub-S corporation is a better solution because I won't be paying as much in taxes. If I recall correctly, with a C corporation, corporate profits are essentially taxed twice, one time for the corporate profit and another time for my personal income. He said this causes most C corporations to try to show a close to zero profit at the end of the year as possible, and that many of them end up re-organizing as sub-S corporations.

Maybe there are other factors to consider as well.

  • In case it's not obvious, this question can easily be adapted to different states in the USA and also to different countries with very little changes, yet the answers are quite likely to be very different from the answers to this question. – Osteoboon May 21 '13 at 22:29
  • Your question should really be reworded to read more like a solid, concrete question, showing research you've done into this. At current, it reads as an open-ended advice question with a plethora of answers (not to say it is or isn't, but it reads that way) – Amelia May 22 '13 at 1:15
  • Thanks for your feedback @Hiroto. Does this edit make it seem less open-ended and more concrete to you? – Osteoboon May 22 '13 at 1:42
  • I still think the whole question of picking a legal business entity is way too open ended. Books can and have been written on this and summary is just not possible. I am voting to close it. I think a good related question would be specific to a particular question regarding a comparison between two business entity types in a specific area, like between sub-S and non-Sub-S corps when it comes to medical insurance and taxes. – Chris Travers May 26 '13 at 6:41
  • In answering the question, I saw the motivation behind the question as the true question. Thus, it may be wise to edit this question so that others see this clearly and provide you with enough experiences of their own to help you make up your best opportunity. – LAK May 26 '13 at 23:05
3

For anyone that's already been down this road, please offer some specific factors to consider in choosing the right legal business entity in RI for a consulting firm with two options: (1) no anticipated retail sales at all, (2) a small amount of retail sales with most income anticipated to be only from professional services rendered.

A quick research I did at the U.S. Small Business Administration revealed that over 70 percent of U.S. businesses are owned by sole proprietors, and operate successfully without incorporating.

A very useful section with 20 questions you need to ask yourself before starting is available, check it.

You will also find 10 steps to starting a business in which Step 5 gives the sufficient input you need on the following:

  1. Sole Proprietorship
  2. Partnership
  3. Corporation
  4. S Corporation
  5. Limited Liability Company (LLC)

Here are also some points you should note regarding the question you asked:

(1) The nature of any business that is paying tax is to make a profit to be a sustainable business. Thus you SHOULD build a business plan that allows you to anticipate profits after sales. If you are not thinking this way then you are NOT READY to have a business! See the SBA links above and notice the Business Plan section.

(2) In this case consider the amount of taxation filing you will have to do for this so called "small amount" of income. This is clearly a weak business opportunity unless you are just helping out a 'friend(s)' in which case you might as well be paid in a way that does not affect too much of your tax status.

I can tell that the problem is not the options available but the lack of information of how to avoid spending your hard earned income whether directly or indirectly through freelancing on taxes. Spend a lot of time on the SBA site and all your answers will be attained.

Additionally, if you have not already done so, contact the local RI (or wherever you are, if not local to RI but other US state or country) Business Incubation services and start telling them about your plans - they will also advice you appropriately on how to find the balance.

Not the answer you're looking for? Browse other questions tagged or ask your own question.