Choosing a Business Structurethemselves and may employ a
Choosing a Business Structure
themselves and may employ a few people. While this may be true for you, you will want to consider the relative merits, and dangers, of the four types of business organizations before opening up. There are important ramifications involved in choosing which one is right for you and your business.
If there is only one business owner you may simply decide to do business as a sole proprietorship. The proprietor - you - will run the day to day operations of your store. There is nothing that you need to do besides open the business, no forms to file. Opening your own business automatically makes you a sole proprietorship. You and your business are distinct entities from each other for accounting purposes, but not legal ones. You and your business are inseparable for legal or tax issues. When you file your taxes, you report the businesses income and loss for each year on your own return. If your store made a profit, even if you did not withdraw money for yourself, it will be taxed as income. If someone sues your business, you can be personally liable for damages. If you default on any debts, the creditors can attach your personal property.
If you are opening your store with someone else, then you have formed a partnership. A partnership joins two or more people together as co-owners of a business. Like a sole proprietorship, there are no forms to file. Once you make an arrangement, with another person to do business together, you have formed a partnership. It is best to make this arrangement in writing by creating a document called a partnership agreement. If you do not, each state has its own laws that govern partnerships. In the event of a partner leaving the partnership, those laws will rule how the split is made, in lieu of a written agreement. The income and loss of the business is passed along to the partners who report their share on their personal taxes. In a partnership, the partners can each be personally liable for debts assumed by the business, even if only one of the partners incurred the debt. It is for these reasons that partnerships are likened to marriages, and partnership agreements to pre-nuptial contracts.
A corporation is a business that is owned by stockholders. It may sound big, but if you are the only owner of your store, then you own all of the stock. A corporation is a legal entity, a person recognized by the government and given its own federal ID number, just as you have a social security number. Forms are filed, the state approves the articles of incorporation, and your corporation is given its own name. The name does not have to be the same as your store's name. In that case your corporation is "doing business as" - or DBA - the name of your store. The biggest advantage to incorporating is the aspect of limited liability. The stockholders are not personally liable for debts or damages that the corporation incurs. This greatly reduces your amount of risk. Also, the corporation does not dissolve when the shareholders die or leave. Certain formalities are required when maintaining a corporation, like holding shareholder meetings and documenting important decisions. C-corporations pay taxes, at a special corporate rate, at the end of each year on profits left over (retained earnings). The shareholders only file personal income tax on money they received from the company in the form of salaries, bonuses, or dividends. S-corporations elect to be taxed in the same manner as partnerships.
Finally, there is the Limited Liability Company, or LLC. An LLC is taxed in the manner of a sole proprietorship or partnership, but retains the limited liability aspect of a corporation. All that you need to do is file articles of organization with your state office and create an operating agreement. Your LLC is now a separate entity in the manner of a corporation, but operates less formally. The LLC is usually the best of both worlds for the new business owner.
Car Donation Kidney Foundation
Car Donation San Jose
Car Donation Ontario Canada
Southern California Car Donation
American Lung Association Car Donation
themselves and may employ a few people. While this may be true for you, you will want to consider the relative merits, and dangers, of the four types of business organizations before opening up. There are important ramifications involved in choosing which one is right for you and your business.
If there is only one business owner you may simply decide to do business as a sole proprietorship. The proprietor - you - will run the day to day operations of your store. There is nothing that you need to do besides open the business, no forms to file. Opening your own business automatically makes you a sole proprietorship. You and your business are distinct entities from each other for accounting purposes, but not legal ones. You and your business are inseparable for legal or tax issues. When you file your taxes, you report the businesses income and loss for each year on your own return. If your store made a profit, even if you did not withdraw money for yourself, it will be taxed as income. If someone sues your business, you can be personally liable for damages. If you default on any debts, the creditors can attach your personal property.
If you are opening your store with someone else, then you have formed a partnership. A partnership joins two or more people together as co-owners of a business. Like a sole proprietorship, there are no forms to file. Once you make an arrangement, with another person to do business together, you have formed a partnership. It is best to make this arrangement in writing by creating a document called a partnership agreement. If you do not, each state has its own laws that govern partnerships. In the event of a partner leaving the partnership, those laws will rule how the split is made, in lieu of a written agreement. The income and loss of the business is passed along to the partners who report their share on their personal taxes. In a partnership, the partners can each be personally liable for debts assumed by the business, even if only one of the partners incurred the debt. It is for these reasons that partnerships are likened to marriages, and partnership agreements to pre-nuptial contracts.
A corporation is a business that is owned by stockholders. It may sound big, but if you are the only owner of your store, then you own all of the stock. A corporation is a legal entity, a person recognized by the government and given its own federal ID number, just as you have a social security number. Forms are filed, the state approves the articles of incorporation, and your corporation is given its own name. The name does not have to be the same as your store's name. In that case your corporation is "doing business as" - or DBA - the name of your store. The biggest advantage to incorporating is the aspect of limited liability. The stockholders are not personally liable for debts or damages that the corporation incurs. This greatly reduces your amount of risk. Also, the corporation does not dissolve when the shareholders die or leave. Certain formalities are required when maintaining a corporation, like holding shareholder meetings and documenting important decisions. C-corporations pay taxes, at a special corporate rate, at the end of each year on profits left over (retained earnings). The shareholders only file personal income tax on money they received from the company in the form of salaries, bonuses, or dividends. S-corporations elect to be taxed in the same manner as partnerships.
Finally, there is the Limited Liability Company, or LLC. An LLC is taxed in the manner of a sole proprietorship or partnership, but retains the limited liability aspect of a corporation. All that you need to do is file articles of organization with your state office and create an operating agreement. Your LLC is now a separate entity in the manner of a corporation, but operates less formally. The LLC is usually the best of both worlds for the new business owner.
Car Donation Kidney Foundation
Car Donation San Jose
Car Donation Ontario Canada
Southern California Car Donation
American Lung Association Car Donation
posted by Johannes T @ 8:57 AM
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