Provided you follow some basic rules and rely on competent legal counsel, the shareholders have only their investments at risk. In other words, individual liability is quite low. Sign all contracts in the corporation s name as the corporation s officer, hold board meetings, keep accurate accounting records and use your corporate name in all your correspondence and advertising. You and your lawyer should pay careful attention to the tax and corporate rules for minimizing the cost of the corporation s harvest, or exit strategy , whether it is to sell the business or to take it public. A C corporation may distribute profits to shareholders via a dividend that is then subject to inclusion on the shareholder s individual tax return.
Profits are also taxed prior to distribution, so dividends are subject to double taxation.
If you are organizing an e-commerce business funded by outside investors who will immediately create profit, and you intend to go public, you will most likely want to form a C corporation. If your business meets certain IRS limitations, your corporation may elect to be taxed as an S corporation , which would then provide the tax advantages of a partnership to the shareholders. The exit strategy for a LLC is reasonably painless from a tax standpoint, but this form of entity is relatively new and therefore still in the development stage. For example, an LLC cannot easily avail itself of some of the usual corporate strategies such as stock options. LLCs are fairly complex to operate.