Types of Businesses

Obviously if your goal is to be location independent you’re not going to start a brick and mortar business, or any business that requires you to be in one place all of the time. Sure, you could hire a manager to run the whole thing for you, but that’s probably not a suitable option for someone who’s never started a business before. You would have to start the right types of businesses to help you achieve your goals.

So you start an online business. Could be freelance work, affiliate marketing, selling products online, among other options. I won’t get into the exact types of work because it varies with everyone and their different skill sets, and that is outside the scope of this post.

Choose Your Business Structure

Instead, I’ll talk about the types of businesses you can register. Basically, you have the following options to structure your business (this is probably more for the US audience, but may also apply to non-US citizens):

  • Sole proprietorship
  • Limited Liability Company
  • C Corporation
  • S Corporation

There are also options involving partnerships, but I won’t get into that here. I’ll have a very basic overview of each. Obviously you’ll want to dig in deeper when you’re ready to register your business.

Sole proprietorship

This is where you own your company under your personal name, both assets and liabilities. However, if your business gets sued, you have no legal protection and are personally responsible for all the liabilities. You get no tax benefits from owning a business — all profits and losses go to your personal return and you get taxed as an individual on all of your income.

Limited Liability Company (LLC)

This structure provides legal protection that a sole proprietor does not have, and you would not be personally liable in case your business gets sued. You also have the tax benefits of a C Corporation even while all your income and profits pass-through to your personal tax return. However, you still pay self employment taxes.

C Corporation

With this structure, it is easier to raise capital and hire employees. But a C Corp is time consuming and difficult to manage, and you’d have to watch out for double taxation if you pay dividends to shareholders. Only worth it if you plan on building a large business and hire lots of employees. Not recommended for the freelancer or sole entrepreneur.

S Corporation

This is a special tax filing election available to an LLC or a C Corp. Above a certain income level, it makes sense to make the S Corp election to save on taxes. You can combine an LLC with an S Corp election if it makes sense. Talk with an accountant, or run the numbers yourself.

So Which One Do I Choose For My Business?

 

What you do largely depends on what types of businesses you plan to run, how much money you expect to make, how you will receive payments (PayPal vs Stripe, invoicing, etc), whether or not you will hire any employees, and how much overhead you’re going to have.

The nature of being a location independent expat often means that you will be running your business yourself, or will have a very minimal number of partners or employees. This may be anecdotal, but most expats I know who own online businesses are sole proprietors or have LLCs. C Corporations are more realistic for larger businesses.

I recommend talking with an attorney or tax accountant before you decide on a structure of your business. Some offer free initial consultations. They can handle all the paperwork for you for a fee, which won’t be cheap — or you can handle it yourself if you understand what you’re doing.

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