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Contractor Company Setup Can be Tricky but Steers You to the Best Business Model
Published June 9th, 2016

Your expertise in the construction business convinced you that you are ready to open your own construction business. Now, let our experts assist you in finding the best business model to suit your current and future plans through our  Contractor Company Setup  program.

Arizona recognizes five basic business forms:

Sole Proprietor:  This is the easiest type of business to create as you work under your own social security number and all profits and losses pass directly through to your personal tax filing. A big disadvantage is you also are personally responsible for all debts and liability for your company, so your home and personal assets could be at risk.

General Partnership:  Two or more individuals can operate a business through a general partnership with profits and losses again passed directly through to your personal taxes. The partnership is the simplest way to go into business together but crafting a partnership agreement always is a good idea. Again, general partners are personally liable for debts and put their personal assets at risk.

Limited Liability Company:  The LLC is the newest and most popular way to form a small business as the owners can protect their personal assets from liabilities created by the company, much as corporations do. The LLC requires registration with the Arizona Corporation Commission, which includes a filing fee and filing of annual reports, but these requirements are less costly and less strict than with a corporation. Some specialty contractors may need to consider a Professional LLC. An LLC's profits and losses pass directly through to the owners, as under a sole proprietorship or general partnership, but if your firm grows large enough, you can choose corporate tax treatment without the extra work required of a corporation.

C Corporation:  The corporate model previously was the only way for owners to gain personal protection from liability, but S Corporations and LLCs have negated that need. But if you expect your company to grow large enough to seek investors and wish to create stock options, the C Corporation is the model for your business. Corporations need articles of incorporation, a board of directors, an annual meeting, and annual reports filed with the state, all of which can take time away from the work of running your business. Corporate taxes can be lower than personal taxes, and you can reinvest profits into the corporation without having to pay personal taxes on them.

S Corporation:  This business form's popularity has declined with the growth of LLCs as it requires you to create a corporation and convert to S Corporation, which means you face the same fees and time commitments as with a C Corporation with little advantage gained over the LLC. S Corporations' owners must be U.S. citizens or residents and are limited to 100 owners, so the business cannot issue stocks. S Corporation profits and losses pass through to the owners and are not taxed at corporate levels.

These are the basics of the basic business forms, but the experts at  Arizona Contractor License Center can help you find the best model and walk you through the registration process, so you can focus on what you do best.

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