Business structure question

September 28, 2021

by a searcher from Arizona State University - W. P. Carey School of Business in Redwood City, CA, USA

We are trying to think through the implications (mostly tax) of different business structures (LLC, S Corp, C Corp and so on). Are there any good resources out there that you would recommend to help us think through the pro/con of each?

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Reply by a searcher
in Maryland, USA

Hey Ben, this was a podcast episode that was helpful for me: https://podcasts.apple.com/us/podcast/llc-vs-s-corp-which-is-right-for-your-business-ep-189/id1574515604?i=###-###-#### The rule of thumb is that an S Corp has a net benefit on the taxes it saves you once you're making over $75K in net profit. Even then, you may want to set up your entity as an LLC for the first 1-3 years to ensure your net profit is consistently at this threshold before electing to be taxed as an S Corp as there can be negative consequences to reverting back to an LLC. You also want to make sure you have the brain space and right team in place to manage the higher compliance requirements that come with an S Corp. If you are new to business or in the first 90 days of a new purchase, you may not want the added complexity of an S Corp. The good news is, the S Corp is just a tax election, not a legal entity, so you can start with an LLC now, and then elect to become an S Corp when you're more stabilized. Hope this helps!

Reply by a professional
from University of Southern California in North Palm Beach, FL, USA

Ask qualified legal counsel. Hire people with a proven history of working on your particular issues and for the kind and size of your company or that you want to buy.

Hire people who can prove they have FACILITATED solutions (in a team setting) that should and did occur. Hire doers, not talkers.

Avoid advisors who don’t know enough about small and midsize companies. Not wanting to make mistakes these poseurs are more likely to poo-poo worthwhile ideas or, worse, bless lousy ideas.

Hire adequately experienced experts.

Compatibility among team members is essential.

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