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Forming LLC for an Internet business

Asked by: Jim - 18 July, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/default.png-f1597c1da25f30f8c1a941405e8391c8 I am in the process of forming an online business selling travel services in the US and around the world. Is there an Entity (LLC, S corp or C corp) that fits this business better than another?
Answered by: Robert Kowalski - 19 July, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/35.jpg-687fc92d5f6c5febcbdccb6895b08b8c Jim,

Here is how each type of business entity would work for your business:

1. C-Corporation would be fine if you intend to eventually go public, however this type of exit is pretty hard to plan up front, and often you will have plenty of opportunities to change the structure of your business by the time you are ready to go public. With that being said, the obvious disadvantage of C-Corporation is the fact that you will be taxed twice - first on the corporate leven and then on personal level. Also, there are typically more formalities required to maintain a Corporation.

2. As a solution you could elect your Corporation to be S-Corporation - if you are a US citizen or legal resident. The way S-Corporations are taxed would in some cases allow you to save more money on taxes than the way LLCs are typically taxed (that is LLCs that are elected to be taxed as either disregarded entities (single member) or partnerships (multiple members)). You are still dealing with a Corporation and all the formalities required to maintain one.

3. Finally an LLC solves you many problems such as double taxation, cumbersome corporate formalities (LLC formalities are usually less cumbersome), and the need to be a US citizen or resident, among other things.. What you also should know is that LLC is much flexible when it comes to taxes, because you can elect it to be taxed as S-Corporation.

To sum it up, for the kind of business that you describe I would say LLC would work better than anything else, for all the reasons I described above.

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