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© December 2005 Tony Lawrence

I'm not an expert in this area. You likely aren't either, so you probably talked to your accountant or lawyer before deciding on the legal form of your business. If you are a one man shop, or a small partnership in the U.S.A., I bet you ended up as an "S Corp". That's what accountants and lawyers usually push small business toward almost without thinking.

And that's the problem I have with their advice: it is mostly unthinking and isn't necessarily the right choice for you.

I've been involved in several businesses. One "S" Corporation, one "C", one partnership and two sole proprietorships. The one I was most unhappy with was the "S" Corporation.

Don't misunderstand: that form of incorporation may be exactly what you need. But I don't think that you should entirely rely upon your lawyer or accountant to determine that. I'm not saying that they are incompetent, but I am saying that they don't know your business intentions as well as you do. For example, one reason accountants often push S Corps is that they assume that your business will lose money in its first few years and that you will use those losses to offset other income. Great, but what if you know your business isn't going to have any losses? When I started my current business, it was a pure consultancy: I bought nothing, I sold nothing but time, and I had no employees. How could I have a business "loss"? I might not have made enough to survive on, but I had no significant business expenses to generate any loss. I didn't have any other income to offset, either, so there wasn't anything to that anyway.

Your organizational form has many consequences for taxes, for paperwork, for doing business in other states, for bringing in employees and so on. It's really important, and I think you need to educate yourself as much as you possibly can so that you understand all of the ramifications. Advice from lawyers and accountants is valuable, but you need to understand it yourself.

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