3 ms·

The concept is sound; however, the execution is far from trivial. GAAP (http://en.wikipedia.org/wiki/GAAP http://en.wikipedia.org/wiki/GAAP) and IFRS (http://e

The concept is sound; however, the execution is far from trivial. GAAP (http://en.wikipedia.org/wiki/GAAP http://en.wikipedia.org/wiki/GAAP) and IFRS (http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards http://en.wikipedia.org/wiki/International_Financial_Reporti...) are two great examples of accounting standards which approach regulation from two very different perspectives. I'd be interested if someone has info comparing administrative costs for businesses operating under each regime. Regarding the tax code, my opinion is that all corporate income tax should be eliminated in favor of steeper progressive tax rates for individual income taxes. Effectively eliminating this burden from corporations and shifting it to the wealthiest who can afford the administrative costs, while also having a neutral effect on government revenues. By its nature, capitalism demands regulations to inspire confidence in investors. So don't fool yourself into believing "all regulation is bad." The question remains, "what is the most effective & efficient means of regulation?" Finally, here's some advice, an LLC is generally the most effective form for a small business to take. When you get to the point where additional equity must be issued or raised, you might then consider the advantages of C or S corporation.

skmurphy 17y ago
In California an LLC pays a franchise tax on gross revenue that SubS is not subject to (in addition to all of the fees that both owe) Unless you have foreign nationals as founders SubS is probably preferable in California.
- joelhaus 17y ago
  So form your business elsewhere. It's true that some states are more friendly to small businesses than others, but generally the reasoning holds true. If that's not enough, you could always pick up shop and shift your nexus to another state. It's really up to the owners judgment, but a significant franchise tax bill on a small business might be preferred over the additional administrative requirements for running an S corp. At least in the former scenario, you are bringing in some nice revenue. [UPDATE: here's some info on California S corp vs. LLC: http://en.wikipedia.org/wiki/S_corporation#California.2C_New_York_City_additional_taxes http://en.wikipedia.org/wiki/S_corporation#California.2C_New...]
  - skmurphy 17y ago
    If you are physically present in California you will end up paying CA Franchise taxes (and corporate income taxes on revenue generated in CA). The additional administrative requirements for a SubS are at most an hour a year for a small firm. Please don't confuse revenue and profits, it's possible to generate revenue, pay the CA LLC Franchise tax on it, and still have a loss on the year if expenses exceeded revenue. With a SubS you only pay tax on profits, which I agree for early years may be close to zero.
    - joelhaus 17y ago
      I think it's fair to say that you should consult a tax professional before forming a legal entity; however, it's also important to have a general understanding of each entity types' cost/benefit. There's plenty of info on the web. Additionally, for purposes of this discussion, legal entities are formed exclusively under state laws. While you can incorporate anywhere, most states require a registered agent be present domestically. You can hire firms like CTcorp to fill this role. The second consideration is your "physical" location. What constitutes nexus (especially for technology companies) is the subject of some controversy, but the specific legislation varies among states. Generally, nexus for income tax occurs in the locations where value is generated. This usually means the location of a firm's assets and employees. Sales tax nexus is even more ambiguous. Here's a better explanation than I could ever give: http://web.archive.org/web/20021001165628/http://www.aicpa.org/members/div/tax/praguide.htm http://web.archive.org/web/20021001165628/http://www.aicpa.o... Treatment at the federal level is uniform. Imagine that a significant portion of HN visitors are located in CA, so skmurphy's advice is worth paying attention to!

skmurphy 17y ago

In California an LLC pays a franchise tax on gross revenue that SubS is not subject to (in addition to all of the fees that both owe) Unless you have foreign nationals as founders SubS is probably preferable in California.

joelhaus 17y ago
So form your business elsewhere. It's true that some states are more friendly to small businesses than others, but generally the reasoning holds true. If that's not enough, you could always pick up shop and shift your nexus to another state. It's really up to the owners judgment, but a significant franchise tax bill on a small business might be preferred over the additional administrative requirements for running an S corp. At least in the former scenario, you are bringing in some nice revenue. [UPDATE: here's some info on California S corp vs. LLC: http://en.wikipedia.org/wiki/S_corporation#California.2C_New_York_City_additional_taxes http://en.wikipedia.org/wiki/S_corporation#California.2C_New...]
- skmurphy 17y ago
  If you are physically present in California you will end up paying CA Franchise taxes (and corporate income taxes on revenue generated in CA). The additional administrative requirements for a SubS are at most an hour a year for a small firm. Please don't confuse revenue and profits, it's possible to generate revenue, pay the CA LLC Franchise tax on it, and still have a loss on the year if expenses exceeded revenue. With a SubS you only pay tax on profits, which I agree for early years may be close to zero.
  - joelhaus 17y ago
    I think it's fair to say that you should consult a tax professional before forming a legal entity; however, it's also important to have a general understanding of each entity types' cost/benefit. There's plenty of info on the web. Additionally, for purposes of this discussion, legal entities are formed exclusively under state laws. While you can incorporate anywhere, most states require a registered agent be present domestically. You can hire firms like CTcorp to fill this role. The second consideration is your "physical" location. What constitutes nexus (especially for technology companies) is the subject of some controversy, but the specific legislation varies among states. Generally, nexus for income tax occurs in the locations where value is generated. This usually means the location of a firm's assets and employees. Sales tax nexus is even more ambiguous. Here's a better explanation than I could ever give: http://web.archive.org/web/20021001165628/http://www.aicpa.org/members/div/tax/praguide.htm http://web.archive.org/web/20021001165628/http://www.aicpa.o... Treatment at the federal level is uniform. Imagine that a significant portion of HN visitors are located in CA, so skmurphy's advice is worth paying attention to!