3rd November 2017 | Sand Law, PLLC
Whether you are building a new business from the ground up or looking to expand a successful operation, it is important to make sure you are proceeding on legally solid footing. Sand Law, PLLC is an established North Dakota law firm serving businesses at all stages of development. With offices in Bismarck, Minot, Watford City, and Williston – our attorneys are ready to assist and advise from the corporate formation stage through conducting due diligence on mergers and acquisitions.
Choosing an appropriate corporate structure for your business can have a major impact on your bottom line. There are major differences in tax liability for Limited Liability Corporations (LLCs), C Corporations, and S Corporations.
LLCs and S Corporations
If you currently operate your business as the sole proprietor, or are incorporated as an LLC or an S Corp., the IRS considers your business a “pass-through entity.” The IRS considers the profits and losses of the business to be directly proportional to the earnings of the owners and taxes them personally in accordance with that calculation. As far as the IRS is concerned, the revenue of the company is “passing through” the company directly to the owners. In many cases, this arrangement makes a lot of sense. Expenses and revenues may be very simple and easily tracked where there are a couple employees, stable overhead cost, and relatively few company assets.
However, if your business has grown over time, you may have outgrown the usefulness of the LLC or S Corp. If the business has acquired secured assets such as machinery or heavy equipment, invested heavily in capital improvements, or leased its own assets to another company, you may want to consider restructuring.
The obvious downside to C Corporations is that they are subject to “double taxation.” C Corporations have tax liability independent from their owners (or shareholders) and are taxed by the IRS accordingly. Therefore, the owner of a C Corp sees part of his or her profit go to the IRS as the Corporation’s tax liability and then must pay his or her own income tax liability on the after-tax profit. Likewise, if your company is paying dividends to shareholders, the earnings will be taxed twice – on the corporate level and then individually for each shareholder.
So, what’s the upside to incorporating as a C Corporation? Almost all major corporations are C Corps. The primary reason to incorporate as a C Corp. is to bring in professional management staff on the officer level. C Corp. organization protects the owners, officers, directors, and employees from personal liability. At some growth point, you may want to bring in a CFO or CTO with significant industry experience. Even if your business expands to the point of hiring internal accountants, risk management officers, or information technology professionals, a C Corp. provides the safest environment to attract the best talent in the industry.
How Sand Law Can Help
Sand Law is a premier business law firm with a dedicated team of attorneys in North Dakota and Minnesota. We have helped businesses in a wide variety of industries in all stages to succeed, adapt, and grow. In addition to incorporation, we have an excellent contract formation team, prosecutes and defends construction and mechanic’s liens, and recovers assets lost in business deals gone awry.
Our firm is uniquely positioned to help North Dakota businesses succeed. We’ve been in Western North Dakota since our inception and are committed to seeing the community thrive.
With experience in oil, transportation, hospitality, retail, real estate, and residential law, we will get you and your business to the next level. Contact us today for a free business law consultation.