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Your client is planning to start a natural soap company. To get the loan to start...

Your client is planning to start a natural soap company. To get the loan to start the company, they plan to contribute land worth $1,000,000 (adjusted basis=$100,000) to the company so it has assets for collateral. What are the different considerations he should consider when deciding what entity type to chose? Should they choose a partnership (if so, what kind?), regular C Corporation, or an S Corporation?

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Answer #2

Though every entity structure has its own merits and demerits, I would prefer my client to go with S Corporation because:

  • An S corporation separates your personal assets from your company’s debts and offers some tax benefits
  • Provides a Liability protection
  • Helps in getting loan from banks

The various other considerations should be the freedom to operate the business with covenants and legal obligations that comes with the entity structure, the prospects of the business, and the need to engage more partners into the business  

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