Are you in the process of creating a company and interested in business formation services? Knowing how to get your idea off the ground is one of the hardest parts of starting a business. And while there are lots of different factors to consider, one of the most important is how your business is structured.
How you define and register your company will have lasting implications on your business. Therefore, it’s not something that should be taken lightly! While starting a company can be a confusing process, there are business formation services that can help you along the way.
In this article, we’ll break down what you need to know about forming a business!
What Are the Different Types of Businesses?
To start your company, you need to get a bit more specific about the business type. When setting up a company, one of the first things you’ll need to do is decide on a business structure. Depending on your business goals and needs, there are a few common types to choose from.
Sole Proprietorship
Considered to be the simplest form of business, a sole proprietorship is a company operated by a single person. It’s easy to set up (you generally don’t have to file formation documents to create it) and relatively inexpensive to get started. While you will have full control over the entire business, you will are also financially responsible for the business’s debts and obligations.
Partnership
A partnership is a business that is shared between two or more individuals. There are different types of partnerships you can form, including General Partnerships, Limited Partnerships, and Limited Liability Partnerships (LLP). Together with your partner(s), you’ll have shared liability for the business’s actions and financial obligations. Since partners are not employees, they are not paid wages that are subject to employment taxes. However, they are subject to self-employment tax on their net earnings from the business.
Limited Liability Company (LLC)
Compared to other business structures, an LLC is one of the most flexible options. Owners of the LLC generally can be protected against liability and debt accrued by the business. And unlike corporations, LLCs may not be subject to double taxation, which can result in greater tax savings.
In fact, the real benefit of an LLC is that it can choose the way it’s taxed. By default, it is taxed as a partnership. However, it can also elect to be taxed as an S Corp or C Corp.
Corporation
If you create a corporation, you will have a separate legal entity that generally can protect you (as the owner) from legal or financial disputes. In a corporation, ownership is divided between shareholders. While this may make it easier to get access to capital and transfer ownership, forming a corporation can be rather complicated and expensive.
There are different types of corporations for tax purposes, but the two most common are S Corporations and C Corporations. Both of these business types are similar in that they offer limited liability protection, must file formation documents, and are owned by corporations (which are owned by shareholders).
Here are the key differences:
- C Corporations: These corporations pay taxes at the corporate level and are sometimes double-taxed. Taxation occurs on corporate income, which then might be taxed again as personal income if it is distributed to individuals in the form of dividends.
- S Corporations: On the other hand, an S Corporation doesn’t pay taxes on the corporate level. Instead, the tax gets passed through to the business, and the owners report it on their own returns.
Nonprofit Organization
A nonprofit organization is best suited for charities, educational programs, or other social organizations. Nonprofits are also eligible to receive grants and are exempt from certain taxes at the federal and state level.
How to Form a Business
Funding a startup or business can be a complicated process (here are a few tips to make things easier). Of course, the very first step is to define your business idea. What types of services are you offering, and who is your target clientele? Having a well laid-out business plan can help you during the early stages of creating a business.
Once that is defined, you’ll need to set up a business with one of the structures we mentioned above. Choosing the right structure is key to success as it sets the framework for how you will operate your business. The entity will also determine your business’s legal status and how much tax you pay.
How do you do that? Well, a business formation service like Block Advisors can help. Not only can they help you decide on a business entity, but they make the entire process easy and even help you change your business structure if you decide to do so down the road.
What Is Block Advisors?
Block Advisors was created specifically with small businesses in mind. As part of H&R Block, they can assist with tax preparation as well as other important tasks that business owners should consider. This includes payroll, bookkeeping, and business formation services.
What Business Formation Services Does Block Advisors Have?
Block Advisors can help you as you proceed through the formation process.
Start by taking their online quiz. Your answers to their six key questions can help you determine which type of business is best for your situation. Block Advisors can also evaluate your tax situation to determine if a specific entity type will result in tax savings, which can help you save money during tax season.
Once you’re ready to move forward, you can proceed with state filing. Just answer a few questions and Block Advisors will create the right documents and submit them to the state registration office of your choice. All of their packages also include EIN (employer identification number) preparation, which is necessary for partnerships, corporations, and sole proprietorships and LLCs with employees.
In addition to filing your forms and creating an EIN, Block Advisors can assist with other types of requirements. For example, they can help with 501(c)(3) applications, Swyft Filings’ Registered Agent Service, or other state add-ons.
The exact price of the business formation service depends on your situation. However, application prep starts at $149 for the Standard service, plus state fees. Price also depends on the requirements of the state where you are registering your company.
And now you can get $25 off their business formation services either online or in-person at H&R Block!*
As you can see, there are a lot of things to consider when creating a business. While it can be a confusing process, working with Block Advisor’s business formation services can make things less stressful. And remember, Block Advisor can help with all your other small business needs, including payroll support, tax preparation, and even bookkeeping!
This article is for informational purposes only and should not be construed as legal advice. You may want to seek the advice of an attorney to evaluate all relevant considerations in forming a business entity.
*Offer valid for new clients only. Discount may not be combined with any other offer or promotion. Available virtually and at participating locations. Void if transferred and where prohibited. Discount will appear in your cart automatically when you use the link. No cash value.
