Incorporating Lawyers in Austin
If you're thinking about starting a business in the Austin area, you should understand the various incorporation options that are available to you. All of the forms you'll need to file for incorporation are available online from the Texas Secretary of State . Before you file, though, take time to review some of the more common incorporation types as outlined by the Duke Firm, PC.
C Corporation: This is the standard or regular corporation, in which the business itself becomes an individual entity. The personal assets of the owners (shareholders) are protected, as they're liable only to the extent they have invested in the corporation. The drawbacks that can be associated with C corporations include the:
- Necessity of following complex and often confusing state and federal laws.
- Restraints that are placed on the actions of owners.
- Threat of double taxation (profits are taxed once corporately and a second time when they are distributed as dividends).
S Corporation: In Texas, as in most states, filing as an S corporation essentially changes the shareholders' tax situation. Instead of the corporation paying taxes, that obligation is passed to the shareholders, in much the same way as a sole proprietorship or a limited liability company. The two corporations are initially formed the same way, but the S corporation requires filing an additional form to indicate that it should have tax-exempt status. S corporations must also adhere to these additional restrictions:
- All shareholders must be U.S. citizens or residents.
- Profits and losses are allocated according to an individual shareholder's interest in the business.
- Shareholder deductions for corporate losses cannot exceed the amount of the individual's stock basis.
- There is no deduction allowed for the cost of fringe benefits to any employee/shareholder who with more than a two percent share of the business.
Limited Liability Company (LLC): An LLC provides the protection associated with incorporation but eliminates much of the bureaucracy found with S and C corporations. It also eliminates the problem of double taxation, since the LLC does not pay corporate taxes. It's important to note that not every state recognizes a one-person LLC, even though the IRS does.
