Choice of the business entity
Once you have decided to start a business, you must decide whether to form your business as a separate legal entity and, if so, what will the entity be, and what are some of the other steps to follow, take to get up and run. This article is intended as a general business advice, so you should still get specific legal advice for your specific situation.
Unique owner. Companies with only one owner sometimes choose to operate as an individual company. In this situation, the company operates essentially as an extension of the owner. The profits and losses of the companies will be accounted for on the individual tax return of the owner. This form of business has the obvious advantage of simplicity as there are no separate business formalities or partnerships to follow.
However, all company liabilities will be transferred directly to the business owner. This means, for example, that if a customer suffers an injury in the business premises or if the business is in debt over his ability to pay, the personal assets of the business owner are legally available to meet those requests.
General partnership. Two or more individuals who own a business can choose to form a general partnership. In a general partnership, the general partners determine how they will share the profits and losses of the business and sign a written partnership agreement that documents these actions. The profits and losses of the company in general name then pass to the declarations of the income of the single members in accordance with the percentages of ownership that are established in the partnership agreement. The same association is not subject to any separate income tax.
However, despite the agreement between partners on how to share profits and losses, each partner is exposed to the total amount of all company liabilities. This means that a creditor or actor can collect the full amount of any claim or judgment from any of the general partners.
Limited partnership. The business form of the Limited Partnership is similar to the General Partnership as the profits and losses are distributed to the partners and passed to the tax returns of all the partners based on the percentages established by the partners in the partnership agreement.
However, some of the partners may be “limited” partners, which means they would not be subject to any personal responsibility for any of the debts or judgments against the company.There must be at least one general partner in the limited partnership, and this general partner will have unlimited personal responsibility The general partner (s), but not the limited partner (s), will be responsible for the management of the company.
Limited liability company. A limited liability company (or “LLC”) consists of one or more “members”. & Rdquo; The percentages of ownership, the distributions of profits and losses and the voting powers of each member of the LLC are determined by an agreement between the parties, which is generally reduced to writing. When the LLC is formed, one chooses whether to be taxed as a partnership with profits and losses that pass to the owners & rsquo; tax returns (as discussed above), or taxed as a company (as discussed below). Members of the LLC are protected by the LLC’s responsibilities.
Society. A corporation (perhaps the best known form of corporate legal organization) is owned by one or more “shareholders” of the rdquo; and managed by a board of directors elected by shareholders. The Board appoints the officers who manage the company’s current activities. The shareholders, directors and officers of the company are generally protected by the company’s responsibilities.
For tax purposes, there are two types of companies: & ldquo; C & rdquo; Company and & ldquo; S & rdquo; Guilds. In a & ldquo; C & rdquo; company, the company is a separate tax entity, so the company’s profits and losses are taxed directly at the company level and do not flow through the shareholders’ tax returns. & Ldquo; C & rdquo; the company could also be subject to a separate “franchise” level; tax at the state level. If the shareholders choose to be treated as a “” “company for tax purposes, then the company will be taxed as a partnership.This means that the company’s profits and losses will pass directly to the shareholders in accordance with their equity ownership.
There are also other differences between & ldquo; C & rdquo; company and & ldquo; S & rdquo; company, including the permitted number of shareholders for each.
How to Form.
In many situations, it will make more sense to form your entity (if you decide to form a separate legal entity and not operate as an individual firm) in the state in which you will operate primarily. Because partnerships, partnerships and legal entities are separate legal entities, they can generally be established in any state, regardless of where the business actually operates. However, the organization according to the laws of the state in which it operates mainly will save you costs and administrative burdens for the maintenance of a “registered agent”. in the state of formation.
The websites of many Secretaries of State contain a great deal of additional information on how to train themselves in their state. In some cases, downloadable forms are available for assistance and sometimes entities can be formed directly via an online interface.
Depending on the type of operational activity, your status may require you to obtain and maintain certain additional licenses. Examples of these types of businesses may include childcare facilities, healthcare-related businesses, restaurants and catering companies.
As your business grows and you expand your operations to other states (including having employees in other states), you may need to qualify & rdquo; your business in those other states. This process is generally simpler (and less expensive) than the formation of the company, but care must be taken to do it correctly.
The bottom line.
When you start your business, make sure you take the time to consider how your choice in the business module will affect your personal tax situation. Consider looking for professional legal and tax advice so that you feel comfortable making the right decision based on your needs and concerns.
Choice of the business entity