Small-Business Answer Book

New Technology and Business Structure

Q:My business technology could use an upgrade. Is it time to set up a computer network?

A: It likely is. Many businesses are used to spending as little as possible on technology, but it's important for entrepreneurs to make sure the technology they invest in today can support their needs tomorrow. A solid network foundation that ties all your technologies together cost-effectively supports your company's business processes, increases operational efficiencies, lowers costs, increases security and makes it possible to easily add more advanced technologies as needs arise. A consistent, secure and reliable network foundation can provide many benefits, including:

Anytime, anywhere information access: Employees can securely access company databases from home or on the road, turning what might be "dead" time into productive time.

Flexibility: A solid network foundation allows growing companies to be flexible in their future plans. It can be scaled up as a business grows and new employees are added.

Faster information exchange: A single network foundation provides the opportunity to easily and securely exchange information among employees, partners and clients. Enhanced collaboration can lead to faster decision making, better customer service and, ultimately, increased profits.

The ability to add newer, emerging technologies: A secure network foundation provides the platform your business needs to add VoIP, video teleconferencing from your PC, webcasting and other cost-saving and productivity-enhancing technologies. Your business applications can evolve from simple printer sharing to complex B2B data exchanges and supply-chain management using the same network infrastructure.

Enhanced security: Without a common network foundation, a business may have multiple internet connections and various types of hardware devices-an environment that's extremely difficult to secure. In contrast, a single network foundation is streamlined and consistent, making it much easier to secure. Map your short- and long-term business goals to the network-enabled technologies that can help your business realize those goals. If you weigh the many competitive and financial advantages of a secure network foundation against the costs over time, you'll quickly see the return on investment.

Q:What's the difference between an S corporation and an LLC? How do I select the proper business structure?

A: Of all the decisions you make when starting a business, the most important one is probably the type of legal structure you select for your company. Not only will this decision have an impact on how much you pay in taxes, but it will also affect the amount of paperwork your business is required to do, the personal liability you face and your ability to raise money. Let's take a look at two common forms of business structures, a subchapter S corporation and a limited liability company, to see how they stack up against each other.

Subchapter S corporations, also known as just S corporations, and LLCs possess several similarities: They offer their owners limited liability protection, and both are pass-through tax entities. Pass-through taxation allows the income or loss generated by the business to be reflected on the personal income tax returns of the owners. This special tax status eliminates any possibility of double taxation for S corporations and LLCs.

That's where the similarities end. The ownership of an S corporation is restricted to no more than 75 shareholders, whereas an LLC can have an unlimited number of members (or owners). And an S corporation can't have non-U.S. citizens as shareholders, but an LLC can. In addition, S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs or partnerships. LLCs, on the other hand, are not subject to these ownership restrictions.

S corporations aren't without their advantages, however. One person can form an S corporation, while in a few states at least two people are required to form an LLC. Existence is perpetual for S corporations. Conversely, LLCs typically have limited life spans.

A few other advantages of S corporations: Their stock is freely transferable, but the interest (ownership) of LLCs is not. This free transferability of interest means the shareholders of S corporations are able to sell their interest without obtaining the approval of the other shareholders. In contrast, LLC members would need the approval of the other members to sell their interest. Lastly, in comparison to LLCs, S corporations may be beneficial in terms of self-employment taxes.

For more answers to your most pressing business questions, visit our Small-Business Answer Desk

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This article was originally published in the October 2006 print edition of Entrepreneur with the headline: Small-Business Answer Book.

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