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Best type of business entity for e-commerce in MI

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What is the name of your state? Michigan

My husband and I will be starting two different companies but both will be in e-commerce. We'd like to register as one parent company and two DBA's in Michigan. What is the best type of business entity for tax purposes?
 


FlyingRon

Senior Member
DBAs have no bearing on taxes (though you probably knew that). Frankly, there's little advantage to not just operate two sole proprietorships at this point. Why do you think you need an LLC or Corporation?
 

quincy

Senior Member
Here is a link to the Michigan Small Business Development Center's Guide to Starting a Small Business. See Part 3, starting on page 20, on ways to legally structure your business.

https://www.michigan.gov/documents/business/Guide_to_Starting_a_Small_Business_271487_7.pdf
The problem with a sole proprietorship (as suggested by FlyingRon) is that YOU are the business and are personally responsible for all liabilities. This is the problem with a partnership, as well, although with a partnership, you and your partner share liability equally.

It generally will be for liability purposes that people form LLCs and corporations. If structured and operated properly, your business assets are kept totally separate from your personal assets. Your personal assets are insulated from the liabilities of your business.

What business structure to form, however, really depends on your personal, business and financial goals. You would be smart to find professional assistance to discuss your businesses and what can work best for you for liability and tax purposes.

Good luck.
 

FlyingRon

Senior Member
On the other hand, a one-man operation is going to suffer from little liability for personal actions. As for financial, the flip side is many people who you wish to deal with aren't going to extend credit to an asset-less corporation or LLC so you may be putting up personal guarantees anyhow. At least Michigan is a "small corporation" friendly state until you get $350,000 in revenue. Contrast this with California where they soak you even if you never made a dollar.
 

quincy

Senior Member
On the other hand, a one-man operation is going to suffer from little liability for personal actions. As for financial, the flip side is many people who you wish to deal with aren't going to extend credit to an asset-less corporation or LLC so you may be putting up personal guarantees anyhow. At least Michigan is a "small corporation" friendly state until you get $350,000 in revenue. Contrast this with California where they soak you even if you never made a dollar.
There are definitely both pros and cons to consider when structuring their businesses.

A lot depends on what types of businesses NewbieInBusiness and her husband have. The extra liability protection offered by an LLC or corporation may not be necessary. Expanding personal insurance coverage could be adequate.

It is still my recommendation that Newbie and spouse discuss their business wants and needs with a business law professional in their area.
 
There are definitely both pros and cons to consider when structuring their businesses.

A lot depends on what types of businesses NewbieInBusiness and her husband have. The extra liability protection offered by an LLC or corporation may not be necessary. Expanding personal insurance coverage could be adequate.

It is still my recommendation that Newbie and spouse discuss their business wants and needs with a business law professional in their area.
I will have a reseller/arbitrage type business while my husband will be doing more of a product and selling online. He already makes a six figure income with his FT job and I am a stay at home mom (don't know if it makes a difference). I do want to form an LLC or Corp for liability purposes. My father suggested a C Corp but he's based in California and doesn't know Michigan tax laws.
 

Taxing Matters

Overtaxed Member
What is the name of your state? Michigan

My husband and I will be starting two different companies but both will be in e-commerce. We'd like to register as one parent company and two DBA's in Michigan. What is the best type of business entity for tax purposes?
Not knowing the details of your proposed business I cannot say for sure what would be the best entity to use for tax purposes. You have to take into account both federal and state taxes — including taxes in other states that may apply to your business if you are doing business outside Michigan.

However, for many small businesses in most states (California and a couple of others as a notable exception) the taxation of the business as a LLC or as a sole proprietorship is the same because the LLC is either disregarded (if it has one owner) or is treated as a partnership (if it has more than one owner). So the LLC might be your best bet here. The LLC does offer you some limited liability protection that you would not get with a sole proprietorship.

In most cases a C corporation is not the best way to go for a new small business. If you run a loss in the first year or two as you get it off the ground, that loss is trapped in the corporation and cannot be used to offset any other income you might have on your personal return. If you make a profit and take money out, the income is subject to tax twice: first the corporation pays tax on its income, and then when dividends are paid out, those dividends are taxable to the owners.

If you both are going to be owners, then a LLC taxed either as a partnership or S-corporation, or a corporation taxed as a S-corporation are likely to be your two best options in most states.
 

quincy

Senior Member
Because what business structure to choose is fact-dependent, you really are best off sitting down with a professional in your area to see which type of business works for you best.

With a six-figure income to protect, the cost of a personal review by a professional should be worth the investment.
 

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