Comments on: Creating a Startup – Choosing a Company Type

By: Mark The Accountant

Mark The Accountant — Sat, 14 Aug 2010 12:49:58 +0000

This is excellent information. By coincidence I was looking to find some introduction to this subject matter so that I can understand the more intricate elements that are being offered elsewhere. I particularly like the way that you have managed to explain things in plain English. Many thanks.

By: phen-fen

phen-fen — Mon, 27 Jul 2009 08:46:23 +0000

Hi,
I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.
Regards,
Jane

By: Nick Sophinos

Nick Sophinos — Sun, 28 Jun 2009 15:24:29 +0000

If you are writing software in as clear, concise, and powerful way that you described these entities, you’ll continue to go far.

By: Creating a LLC – Operating Agreement | Lead Thinking

Creating a LLC – Operating Agreement | Lead Thinking — Sun, 28 Jun 2009 11:13:40 +0000

[...] my last two posts, I explained corporation types and the initial incorporation. However, once your company is incorporated, you need to get the [...]

By: Incorporating a LLC | Lead Thinking

Incorporating a LLC | Lead Thinking — Sat, 20 Jun 2009 08:32:07 +0000

[...] following on from my last post on startups, here I explain the process of incorporating a [...]

By: Scott Peterson

Scott Peterson — Mon, 08 Jun 2009 07:28:57 +0000

Nice summary. One thing that stuck out for me, though, is the idea that VC’s look down on LLCs. If you are a bootstrap startup, you want to keep the bookkeeping as simple as possible; therefore choose LLC. If a VC is interested in you to where they are considering investing millions, the cost of legal advice and work to restructure from LLC to C corp is trivial relative to the rest of the investment. It should be a non-factor.

By: Linda Coleman

Linda Coleman — Sun, 07 Jun 2009 22:01:00 +0000

Good points on LLCs. Just a few comments from a tax perspective.

LLCs are a light weight business entity type however, the IRS does not recognize the LLC. By default, LLCs with just one member will be taxed as a sole-proprietor, reporting the income on Schedule C and LLCs with 2 or more members (including husband/wife members) are considered partnerships for tax purposes and must file a separate Partnership Income Tax Return (Form 1065).

In either of these cases, your share of the income from your LLC > $400 is subject to the 15.3% self-employment tax. This is on top of the income tax. This is a tax comes as a surprise to most first time business owners.

LLCs can elect to be taxed as a C corporation by filing Form 8832 or as an S corporation by filing Form 2553. Actually “foreign” is a bit more restrictive than the regulations. S corp shareholders must be either citizens, resident aliens, or trusts. But you’re right that as a non-resident alien, you could not be a S corp shareholder.

Also, state tax rates on LLCs vary widely. For instance, California’s tax on LLC is a minimum of $800 each year.

Looking forward to your next post!
Linda Coleman, EA