The advantages and disadvantages of various businesses must be distinguished. Each state has different rules and regulations regarding business classification so it is important that you have an attorney with you to help you through this tricky process. Sole Proprietorship
It is the simplest business formation; you don’t form a separate legal entity if the business functions under your name, trade name or company name (DBA- Doing Business As). You can establish a sole proprietorship by registering at you local government office and costs up to $100. In a sole proprietorship, profit and loss goes to personal taxes and business income is stated on Schedule C on the tax return.
One drawback to this type of business entity is that there is no separate entity and the owner holds full responsibility for the business. Creditors can take all assets if the business is unsuccessful.
Partnership
This type of business entity changes often and is difficult to describe. Partnerships are regulated by state laws and the Uniform Partnership Act which has been accepted by most states. Income and/or loss pass to the partners without partnership tax. There are different levels of risk; what to do if a partner decides to leave, sell or purchase provisions for partners, and elimination arrangements.
Make sure you are prepared for any issues that may arise by working with a lawyer who specializes in partnerships to reduce any problems.
Corporations
Your business can be a regular C corporation or a small business S corporation. A C corporation protects owners from personal liability and the has the greatest non-tax benefits. A C corporation is a separate entity and pays it’s own taxes. The standard C corporation is best if you want to go public and believes it raise investment capital.
A small business S corporation is often used for family and small ownership businesses. It is different from a C corporation because its losses or profits go to the business owners. Profits and losses are not taxed separately before going to the owners. Essentially, the owners are taxed once, while C corporation owners are twice taxed. S corporations are owned by a maximum of 25 owners and only individuals can hold stock in S corporations.
It’s not too often that businesses switch from C to S. The IRS implements very strict regulations for how and when a business can switch. It’s highly recommended that you have an attorney and a CPA to help you through the switching process.
Limited Liability Company (LLC)
Limited Liability regulations differ in each state. LLCs are similar to S corporations in that it has some legal liability limitations and some tax benefits and transferring of assets. When deciding to become a corporation or an LLC, talk to a local small business attorney to weigh the pros and cons.
Attorney
Go through licenses, legal establishment…Know the legal processes to develop a business and prevent future difficulties!
Licenses and Permits
Depending on your state and business type, licenses and permits can vary. Visit your local government, consult the Chamber of Commerce or the Small Business Development Center.
Resale License and Sales Tax
Reseller businesses in states that have sales tax do not pay sales tax on things they purchase for resale.
Employer Number and Tax Payer ID
EIN or Employer ID numbers are given by state tax authorities and the IRS. Your SSN is your federal taxpayer ID if your corporation is not established and you don’t have employees.
If you have any issues or concerns about the content provided or want to know about New York Business Insurance, New York Workers Comp Insurance, or New York General Liability Insurance to get your small business started, contact Metropolitan Risk Advisory.
