How to Start a Business in Louisiana, Explained
Having a good idea is just the first part of how to start a business in Louisiana. You’ll need to water that seed of an idea—and fill out some pesky paperwork—to help it grow into a full-fledged company. If you don’t know where to begin, check out our guide below on how to start a business in Louisiana.
Picking a Structure: How to Start a Business in Louisiana
Before you kick off the process of forming a new company, you’ll need to decide what type of business structure you’ll use. Each type comes with its own advantages and tax consequences which should inform your decision. If you still have questions after reading about the six types below, you should consult an attorney, accountant, or professional who can help guide you in the right direction.
A sole proprietor is anyone who owns an unincorporated business on their own. This type of business is easy to start and doesn’t require filing any paperwork for you to begin working. With a sole proprietorship, your business name is your legal name, and there’s little division between your personal and business finances.
If you’re researching how to start a business in Louisiana, one of the most important things to know about sole proprietorships is that you are personally liable for any business debts or expenses incurred. If your business is sued for any reason, your personal assets are at risk. This is in stark contrast to a limited liability company, or LLC.
Sole proprietors also report all business income as personal income and pay self-employment taxes on those funds to the IRS.
Limited Liability Company
Limited liability companies—LLCs for short—are defined by the ability to separate personal and business funds. With an LLC, you can open bank accounts, sign legal contracts and licenses, and staff your company under your business name.
Unlike a sole proprietorship, limited liability companies—LLCs for short—protect your personal assets, such as your house, car, and savings, in the event that your business is sued or goes into debt.
Additionally, LLCs provide more flexibility than corporations with regard to taxation and management. With an LLC, business owners can take advantage of pass-through taxation, which means profits can pass through the company and only be taxed at the individual level.
Low-Profit Limited Liability
Low-Profit Limited Liability companies—L3Cs for short—are a recent addition to the options for how to start a business in Louisiana. L3Cs are allowed to make a profit, but the main drive behind the company must be a charitable or educational purpose.
This type of company has pass-through taxation, limited liability, and the flexibility of an LLC. The L3C structure makes it easier for the business to receive Program Related Investments (PRIs) from charitable trusts and foundations.
How to Start a Business in Louisiana: Corporations
Similarly to LLCs, corporations also provide a framework to separate your personal and business assets. However, instead of having individual owners like an LLC, a corporation has shareholders and, accordingly, more formal requirements for reporting. The opportunity for shareholders makes corporations more desirable for investors than LLCs.
There are two main types of corporations—S-corps and C-corps—but in Louisiana there are also Benefit Corporations (B-corps). You have to choose between these types if you’re looking into how to start a business in Louisiana.
C-corps are the most expensive and complex of the corporation structures. In a C-corp the corporation becomes a separate legal entity and can enter into contracts, buy and sell property, and sue and be sued. Shareholders in a C-corp have limited liability and are not held responsible for the corporation’s debt or liabilities. They are, however, taxed on both the profits of the corporation and the money they receive from the corporation.
S-corps receive more favorable tax treatments because the shareholders can choose a pass-through taxation, which only taxes the shareholders on the money they make from the company. S-corps are less flexible and customizable than LLCs, and there are specific regulations for which companies can opt for S-corp status, including the number and type of shareholders.
B-corps are a new entity in Louisiana and allow the management to take non-economic considerations, such as the impact on the environment, into account. This is a good option for companies that are planning to go public and want the decision-making of the company to be guided by values and social good rather than profit generation. B-corps still face double taxation, like C-corps, in addition to extra expenses and administrative requirements.
A partnership is a form of operations between two or more individuals who share the company’s management responsibility and profits. Partnerships do not have to be formalized in writing and can be entered into at any point.
Partnerships are appealing because the company does not pay tax on its income but passes any profits or losses to the individual partners. An important thing to note is that during tax season, partnerships have to file a Form 1065 tax return to the IRS that reports its income and losses in addition to each partner reporting their share of income and losses on Schedule K 1 of Form 1065.
Similar to sole proprietors, general partners manage the company and are liable for the partnership’s debts and obligations. Additionally, each general partner can act on behalf of the whole partnership, take out loans, and make decisions that are binding to all partners.
Partnerships are also more expensive than sole proprietorships to establish because there are more legal and accounting services required.
Limited Liability Partnership
A limited liability partnership is similar to a general partnership but is slightly more complex. This type of partnership is most commonly seen in investment funds and venture funds. Documents must be filed with the Secretary of State and the limited partners are not permitted to actively participate in the business day-to-day management operations.
The limited partners who invest their capital into the company receive a percentage based on their ownership interest but have no personal liability.
A limited liability partnership must also still have general partners who are liable for the partnership’s debts and face the same risks as explained above.
Nonprofit organizations, also referred to as NPOs or 501(c)(3) organizations, are an IRS tax-exempt. Additionally, donations made to a nonprofit are also tax-deductible to the individuals and businesses that make them.
To receive a tax-exempt status, the organization needs to request 501(c)(3) status from the IRS and once registered must maintain compliance. To obtain that status, the organization must further religion, scientific, charitable, education, literacy, public safety or cruelty-prevention causes or purposes. It’s also important to note that nonprofit organizations cannot be political.
In addition to serving the public, nonprofits must make financial and operating information public using a Donee Information Return, Form 8282, to inform donors how their donations are being used.
Additionally, nonprofits are sometimes referred to as not-for-profit organizations (NFPOs) but there are in fact key differences. For instance, NFPOs do not have to offer a social benefit or provide goods or services, they may exist just to serve their membership rather than society as a whole. NFPOs also do not operate under 501(c)(3) but instead operate under 501(c)(7).
How to Start a Business in Louisiana: Work with Canal HR to Grow Your Company
Starting a business can seem intimidating but with the right type selected and planning, it is not only extremely doable but incredibly exciting. Plus, it only gets easier with a professional employer organization, or PEO, like Canal HR.
A PEO can handle payroll, benefits, HR, tax administration, risk management, and regulatory compliance assistance. At Canal HR, we aim to make it possible for owners to devote more of their time and effort to running this business instead of dealing with the seemingly endless paperwork.
We are located in Metairie, Louisiana, and have been operating in the New Orleans area since 2013. We serve hundreds of businesses across the southeastern region of the U.S. Contact us today for a free consultation and to learn how we can help your business.