Business FAQs

Should I form a company or not?

The main advantage of incorporating or forming a limited liability company (“LLC”) is to protect personal assets such as bank accounts, stocks and bonds, recreational vehicles, and real estate other than your homestead. General partnerships do not shield personal assets.

How long does it take to form an LLC or company?

Our firm files your incorporation paperwork with the Secretary of State in 24-48 hours. The remaining corporate documents are drafted subsequently.

Can a corporation or a LLC consist of one person?

Yes. One person can be a corporation or a LLC. That one person would be the shareholder, board of director, President, Vice-President, Secretary and Treasurer, or member and manager in case of a LLC.

What is an LLC?

Like a corporation, the members of an LLC are generally shielded from personal liability for the LLC’s debts and obligations if the LLC follows certain formalities. The owners of an LLC, called members, get many of the same tax benefits as partners in a partnership and enjoy the limited liability benefits of a corporation. Typically, unless the members choose otherwise, an LLC is taxed almost exactly the same way as partnerships and sole proprietorships. Profits and losses are passed through to the members of the LLC, and there is no income tax at the business level, or double taxation.

Are profits split according to the percentage ownership in the LLC or S-corp?

Not necessarily, although this is a common assumption. Profits do not have to be split in the percentage of ownership. Owners can pay themselves or investors a different percentage of profits on a per project basis or other arbitrary agreed upon criteria.

What are the disadvantages of an LLC or a Corporation?

The maintenance and formality of an LLC or S-corp is somewhat inconvenient compared to a sole practitioner in that, once a year, minutes or notes of major company activities should be written. Further, a separate tax return will have to be prepared for the LLC or corporation in addition to the personal tax return, therefore a CPA is usually necessary. However, the peace of mind of asset protection provided by an S-corp or LLC is generally worth the paperwork.

What is a Subchapter S Corporation, S-Corp?

You have heard the word “corporation” for years, and you might think this means a large business with multiple owners and many employees. Your business doesn’t have to be large or have more than one owner in order to form a corporation. In fact, an “S-corporation,” or “S-corp,” is extremely common for new small businesses and one-person companies.

The biggest advantage of choosing an S-corp for your business rather than a LLC is that Texas case law supporting S-corps is much older than case law on LLC’s. To date, the case law is stronger in shielding you from personal liability for the corporation’s debts and obligations than it is for LLC’s.

An S-corp is basically the same thing as a C-corp except that the S-corp has elected a special federal tax status, namely, S-corporation tax status. The election is made by filing Form 2553 with the Internal Revenue Service (IRS). So, what exactly does S-corp status mean? It means that the corporation will be treated like a partnership, limited liability company (LLC) or sole proprietorship for tax purposes: business profits and losses “pass through” the corporation directly to the owners or shareholders, who in turn report the profits and losses on their individual tax returns.

Should I be a minority owner in a company?

What should you do if your friend or anyone asks you to be part of their company, but only as a minority owner of the company or LLC? If you agree, you should require that you also be a member of the board of directors or a manager in an LLC; otherwise, your investment can be at risk. A minority owner cannot demand any return on its investment because the majority shareholder or member can take high salaries and bonuses, leaving no “profit” to be split among the owners. The majority owner taking high salaries and leaving little or no money for profits to go to the minority owner is the most common dispute in friendships that Badeaux & Associates sees.

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