I spend a substantial amount of time fielding questions about whether a new Iowa business owner should form a corporation or LLC.  It’s an important question but I caution new business owners not to get too bogged down in the details. Instead, I suggest putting a team of advisors in place to help navigate the issues of business formation. I highly suggest not only consulting an experienced business attorney but also an accountant to help advise on tax issues. In my opinion, tax issues will often drive the choice of entity decision as much as any single issue. That’s why advice from an accountant is very helpful in the process.

Some basic items often considered in whether to form a corporation or LLC:

• Will your business entity have only individuals or will business entities be shareholders / members? S corporations have restrictions that make it impossible for business entities to be shareholders. Consequently, business entities with businesses as shareholders / members will most often consider C corporations or LLCs.
• Are you looking for venture capital? Venture capitalists tend to favor C corporations.
• How much income do you anticipate (realistically) making? Depending on how much money you make, the S corporation may be more advantageous from a tax standpoint than an LLC due to self-employment and other tax issues.
• A single member LLC may be especially good in certain situations depending on income level because it offers less formalities than corporations and you may be able to file taxes on your own individual return without the need of a separate tax return like corporate entities.

These issues only touch the surface of choice of entity questions. There are often other issues to consider. Seeking advice from an experienced business attorney AND accountant is important to set your business on the right track. And don’t worry, many business owners change their entity after the initial formation when circumstances change. Choice of entity is an important decision but there is nothing that says it must be set in stone throughout the entire existence of your business. If circumstances change, your choice of entity may change too.