| It wasn't too long ago that I was where you are now, | | | | years, hold annual meetings and keep minutes of those |
| working on a plan to get my business started. I | | | | meetings, issue stock certificates, and elect directors |
| struggled with the form that I wanted the business to | | | | or ratify the status of existing directors. The profits of |
| take. Isn't it enough to figure out what I want to sell and | | | | a subsection C-corporation are subject to double |
| how I want to sell it? I didn't really want to study up on | | | | taxation. They are taxed once when the corporation |
| taxation and legal liability. I just wanted to get this | | | | makes a profit and taxed again when the profit is |
| business going! | | | | distributed in the form of dividends. A subchapter S |
| I've condensed what I learned through that process to | | | | can avoid this double taxation because income can |
| help you get started more quickly. The information for | | | | flow through to the shareholders to be reported |
| this speech is drawn from Small Business | | | | directly on their personal tax return. However, owners |
| Administration materials, the Iowa Secretary of State's | | | | must be paid a "competitive wage" for any work they |
| website and my personal experience setting up an | | | | do for the S-Corp or all the profits and earnings can |
| LLC. We'll start by examining three of the many types | | | | be considered earnings and will be subject to payroll |
| of business structure allowed by Iowa law and looking | | | | tax. |
| briefly at the advantages and disadvantages of each. | | | | As you can see, the corporate structure offers the |
| Then we'll take a look at the process of forming an | | | | advantage of limiting liability, but at the cost of |
| LLC. | | | | increased complexity over the sole proprietorship and |
| The business structures that we will look at include the | | | | may have tax disadvantages. The Limited Liability |
| sole proprietorship, the corporation and the limited | | | | Company combines some of the features of each |
| liability company. Let's start with the sole proprietorship. | | | | form of business and may be the most advantageous |
| This is the easiest form of business to start. Of | | | | way to structure your company. An LLC is a relatively |
| course, the sole proprietor must comply with the | | | | new hybrid structure. It's fairly easy to set up, as you |
| applicable laws for his or her business, but there is no | | | | will see in a few moments. It combines the advantage |
| extra paperwork or expense needed to structure the | | | | of limited liability afforded by the corporate structure |
| business. All of the profit and loss from a sole | | | | with option of electing either corporate or personal |
| proprietorship is reported on the proprietor's personal | | | | taxation. The primary disadvantage of an LLC |
| income tax return. The major disadvantage to this | | | | structure is that it takes a little time to set up and there |
| business structure is that the proprietor has unlimited | | | | is a filing fee that the sole proprietor does not have to |
| personal liability for the debts and other obligations of | | | | pay. |
| the business. | | | | In order to set up an LLC in Iowa, the owner(s) must |
| Business owners that wanted to limit their liability for | | | | set forth a name, street address for the LLC's initial |
| the obligations of their business have traditionally used | | | | office and the name of its initial registered agent at |
| the corporate structure. A corporation is considered a | | | | that office, and file a Certificate of Organization with |
| separate person by law and this structure limits the | | | | the Secretary of State, along with the filing fee, which |
| liability of the owners to the amount of their investment | | | | is currently $50.00. The Secretary of State will make |
| in the company. Other characteristics of this structure | | | | sure that the paper work is in order and that the name |
| include the ability to raise cash easily by selling stock | | | | is in compliance with state code and issue an |
| and securities (assuming of course there are buyers!), | | | | acknowledgment of the Certificate of Organization. |
| centralized management, and the potential for a | | | | While I chose to have an attorney help me with this |
| perpetual existence. A for-profit corporation is the | | | | process because I wasn't familiar with it at the time, it |
| most complex structure to set up and to operate. To | | | | really wasn't necessary. If you are looking for a |
| form a for-profit corporation, the owners must choose | | | | business structure that combines tax advantages with |
| a name and deliver articles of incorporation to the | | | | limited liability and is fairly easy to set up, you should |
| secretary of state. The corporation is also required to | | | | consider structuring your business as a Limited liability |
| file biennial reports to the state in even-numbered | | | | company. |