Should you change your corporate status?

Way back in December 1997, Inc. Magazine published an article that discussed the circumstances under which a business may want to consider switching its corporate status.  Among the conditions it discussed were the following:

• The company needs capital. If you’re simply contemplating raising your credit line or bringing in some informal investors, you can probably stay with whatever structure you’ve got. But if you’re aiming for venture capital or a public stock offering, you’ll need C- corporation status.
• You’re exploring incentive compensation. A deferred-compensation arrangement will likely mesh with whatever corporate structure you’ve got. But setting up a stock option plan will be much easier if you switch to C status. The exception: you can use an S structure if the number of employees covered–plus the number of previous shareholders–doesn’t exceed the new 75-owner limit for S corporations.
• The company is profitable and no longer capital hungry, and you’re looking to boost your personal income. One quick solution might be to switch from C- to S-corporation status, thus eliminating the double tax on all dividends paid out to shareholders. But don’t go this route if you’re also contemplating an IPO: you won’t be able to revoke your decision for five years.
• You’ve got great prospects, but the company is still losing money like crazy. Corporate losses, and the tax benefits they can provide, may be more valuable if you switch to a C corporation. That’s because, in many cases, S-corporation owners can claim corporate losses only on their personal tax returns up to the amount of their total investment. With C corporations, most losses can be claimed (or carried forward into later tax years) at the corporate tax level.
• You’re thinking about adding fringe benefits but are looking for ways to control their costs. It’s time to get your accountant to do a cost-benefit analysis. Many fringe benefits for owners turn out to be cheaper with C-corporation status. But don’t switch before figuring out whether the cost of double taxation would wipe out any benefits you’d receive from a switch.

• You’re diversifying the company into a new business line. Wait! Although switching to an LLC structure is often too costly to make sense for an established business, you might be able to achieve real benefits by organizing your new venture from day one as a limited-liability company.

About the author  To change this standard text, you have to enter some information about your self in the Dashboard -> Users -> Your Profile box. Read more from this author

• Entrepreneurs Tale of the Tape The numbers are compelling, but perhaps not surprising: entrepreneurs make our economy - period.  Our economy isn't driven by social programs, or by AIG/Lehman Bros/Morgan Stanley/General Motors or any other combination of banks or big business.  The concept that "What's good for GM is good for America" has been turned......
• 11 Ways to Protect Yourself in Business Business is riskier than ever these days.  The economy is a mess, credit markets are tight, taxes are high - and likely to go higher, the courts are clogged with frivolous lawsuits, and attorneys seem to rule the world.  What can you and I do about it?  Fortunately, we......

• Shh! Be Vewy Vewy Qwiet, Banks Getting More Than $700 Billion
• What Are The Benefits Of Online Workiing