forming a legal entitys

Question

we need detailed information about forming llc or s corp and holding company

all pros and cons

where to start

what's required

taxes

for ecommerce business

...

Answer 1

LLC v. S Corp v. Holding Company:

Firstly, a "holding company" can be any entity. The entity functions to "hold" business assets separately from your personal assets, usually for liability purposes to protect the business owner. If a customer were to sue the business and WIN, they'd only be compensated via business assets. This insulates the business owner from potentially losing their home or other assets in case of suits.

An S Corp is a formalized entity suitable for corporations with employees, investors, and shareholders. Required formalities for S corporations include: Adopting bylaws, issuing stock, holding initial and annual director and shareholder meetings, and keeping meeting minutes with corporate records. These same formalities do not apply to LLCs.

1. LLCs can have an unlimited number of members; S corps can have no more than 100 shareholders (owners)
2. Non-U.S. citizens/residents can be members of LLCs; S corps may not have non-U.S. citizens/residents as shareholders.
3. This means that if you are not a US citizen, your best option may be an LLC.
4. S corporations cannot be owned by corporations, LLCs, partnerships or many trusts. This is not the case for LLCs.
5. S corporation shareholders receive their profits and losses based on their percentage of ownership. LLCs can allocate profits and losses on almost any basis they want.

Tax Considerations:

Both LLCs and S corporations are pass-through tax entities. (Although the owner retains the option for their LLC to not be taxed as pass-through) With pass-through taxation, no income taxes are paid at the business level. Business profit or loss is passed-through to owners’ personal tax returns, reported and paid at the individual level.

S corporations may have preferable self-employment taxes compared to the LLC because the owner can be treated as an employee and paid a reasonable salary. FICA taxes are withheld and paid on that amount. Corporate earnings after payment of the salary may be able to be treated as unearned income that is not subject to self-employment taxes.

Consider using this online tool to help with your decision: https://www.wolterskluwer.com/en/solutions/bizfilings/tools-and-resources/incorporation-wizard-tool

Recommendation:

Unless this e-commerce business involves business partners, I'd recommend founding a simple LLC. That way you can be protected but also have flexibility in how the business operates.