I have generated more than nominal income through the sharing economy. What are the benefits to establishing a formal legal entity?

While there are different types of legal entities that an individual can create, the following are a few factors that should be considered when determining whether creating a separate legal entity is appropriate for an individual.

In the case of individuals seeking protection from unlimited liability and potential tax benefits from businesses that utilize the sharing economy, an LLC (Limited Liability Company) is likely the most advantageous corporate entity to create.

However, under certain specific circumstances, for businesses planning to grow quickly and raise equity from a large number of investors, forming a C-corporation might be a better option for your business.

• Both of the structures mentioned above provide the owner of the business with liability protection. This means that potential creditors (whether that is someone who has given you a loan or won a judgment against you) may only be able to stake a claim to the company’s assets — not the owner’s personal assets.
• Creating a legal entity may also provide certain tax benefits. The specific tax benefits differ between a traditional corporation and an LLC.
• Establishing a legal entity also creates obligations on the part of the individual owner to uphold certain formalities. These formalities differ between a traditional corporation and an LLC.

The appropriate form of corporate entity for your business depends on the type of business, your locality, your expenses, and your plans for the future of the company.

You should consult with tax advisors regarding the costs and benefits of organizing a venture as an LLC or a C corporation before moving forward.

The foregoing is not intended to be, and should not be construed to be, tax advice. This website offers general answers to general questions based on information obtained from www.irs.gov and other publicly available information. Collaborative Fund cannot be held responsible for the results of any position taken on a tax return by any user of this site. Users should always obtain independent tax advice from a qualified tax professional to determine the tax consequences applicable to such user’s personal situation.