Choosing the right entity type for your business isn’t a one-size-fits-all approach. Every small business is structured differently, whether you have partners or are operating solo, and each formation brings its own benefits to the table.
What makes incorporating a business such a challenge?
More often than not, entrepreneurs approach the incorporation process with some trepidation. They are worried they might incorporate as the “wrong” structure. In an effort to steer clear of making mistakes, they may choose the same entity a colleague picked to incorporate their business without doing extra research to determine if this entity meets their needs.
Then, there’s the process that comes with incorporating a business. Typically, incorporating a business is not an activity you can start and finish within ten minutes or less. It takes a bit of time and energy to complete a business filing, which is why many entrepreneurs delay the process. You can always do it later and still operate the business unincorporated — right?
Not quite. Picking the right entity to incorporate a business is a big decision. It requires a thorough understanding of each specific entity. Doing this kind of research may also be time-consuming on an entrepreneur’s part.
Let the Entity Choice Wizard guide you to the perfect business formation
Luckily, MyCorporation, a Deluxe Company, is here to help fix that for you. Meet the Entity Choice Wizard, a tool specifically created to guide entrepreneurs toward uncovering the entity that’s the best fit for their business, all by taking a brief quiz.
Once you’ve finished taking the quiz, your business may be eligible to incorporate as one of the following five formations:
- Limited liability company (LLC)
- C Corporation
- S Corporation
- Nonprofit corporation
- Professional LLC (PLLC)
How does the Entity Choice Wizard work?
MyCorporation’s Entity Choice Wizard tool works to compare different business formation options and assist entrepreneurs in choosing the right one for their business.
It’s completely free to take the quiz, which guides its takers through a series of 14 questions. A sidebar on the Entity Choice Wizard includes a list of the entities that may be the result of your quiz, including LLCs, C Corps, S Corps, Nonprofits and Professional LLCs.
What kinds of questions does the Entity Choice Wizard ask entrepreneurs?
Some of the questions asked will address different variables within your business, including:
- The number of people that will have ownership in the business
- Whether owners/shareholders will financially benefit from the business beyond receiving a salary
- If the business is centered in a public benefit or charitable cause
- Whether owners or shareholders will be company employees and receive payroll benefits
- And 10 more questions
As you choose an answer to each question, the entity listed under “best entity choice” will light up in bright green. Gradually, the entity that is the appropriate match to the question’s answers will grow longer and longer in its bar graph.
What happens when you finish the quiz?
You will receive your results once you’ve finished taking the quiz. I quickly took the quiz myself — as a hypothetical entrepreneur — and discovered my business would be best suited for an LLC. The quiz results explained their reasoning for choosing an LLC for me with the following paragraph:
Based on your answers, an LLC may be the best entity for your business. This result is not a substitute for the advice of an attorney. Forming a limited liability company (LLC) provides benefits and liability protection for any type of business with a relatively low amount of maintenance.
The results of the quiz also include buttons that allow you to visit MyCorporation’s product pages. My result took me to the page to form an LLC, so I could get started incorporating the business.
These paragraphs briefly detail how each entity works, giving quiz takers a clear understanding of the entity that suits their business best. This allows entrepreneurs to make informed decisions about choosing the formation that works for them.
Which entity should you choose to incorporate your business?
Now that your quiz results have told you which entity to incorporate as, it’s time to learn a bit more about the entity itself. Below is a quick breakdown of the five entities you may be assigned while using the Entity Choice Wizard.
Limited liability company (LLC): Incorporating as an LLC provides your small business with liability protection. This ensures that your personal and professional assets are separated. In the event of an unforeseen circumstance, such as a business debt or a lawsuit, your personal assets like houses and cars would not be impacted. An LLC is also a fairly flexible entity to run, and allows its members to choose either an S Corporation or C Corporation as its designated tax entity.
C Corporation: C Corporations are legal structures for businesses that tax profits separately from their owners. Earnings are taxed at a corporate level while dividends distributed to shareholders are taxed at a personal level, commonly referred to as “double taxation.” In spite of double taxation, C Corps provide entrepreneurs with an entity that is separate from its owners. Filing as a C Corporation gives businesses the chance to raise investment capital and even allow their businesses to go public.
S Corporation: Whenever a business decides to file as an S Corporation, they have the benefit of utilizing its pass-through structure. This keeps the business from facing double taxation. Instead, the net profits and losses are passed through to shareholders. Doing this ensures that the business is taxed only once at the shareholder level.
Nonprofit corporation: A nonprofit corporation is defined as a corporation founded for a charitable purpose. It must be formed to benefit the public or a specific group of individuals. Eligible businesses that decide to incorporate as a nonprofit corporation may also apply for tax exempt status through the IRS. More often than not, most entrepreneurs choose to file as a 501(c)(3) exemption. This exemption is applicable to nonprofit corporations founded for charitable, religious or educational purposes.
Professional LLC (PLLC): Filing for a PLLC is necessary for professionals that work out of states where licenses are required to perform services. Generally, these professions include doctors, lawyers, accountants and architects to name a few. Once you have filed for a PLLC, you are able to limit personal liability for claims related to a co-partner’s negligence or misconduct. Doing this helps ensure that one partner is not liable for the claims of another partner.
Ready to form your business?
Once you’ve made an informed decision with the help of the Entity Choice Wizard, you can incorporate your business. This means you get to enjoy the following benefits:
- Protect your personal assets by creating a separate legal entity
- Save money by taking advantage of specific small business tax breaks
- Build credibility by establishing a legitimate, professional identity
The type of business entity you choose will have important legal and financial implications for your company, so don’t be hasty. MyCorporation’s Entity Choice Wizard tool will provide the guidance you need to make an informed decision and find the business formation that works for you.