Being a new business owner you need to determine how you will structure your business. Deteriming the structure of your business is for tax purposes. It allows you to determine how the government (federal, state, and local) recognizes your business entity and ensures you are paying the correct taxes on your sales and services.
This is a brief over view of the most common business structures for a new business.
Sole-Proprietorship
A sole-proprietorship business is when someone owns a business that is not incorporated and they are the sole owner hence fore the term sole-proprietor. You are the sole owner of the business. This is an excellent way to structure a new startup business. No Federal Tax ID is needed. You will use your social security number as your Tax ID number. Your business profits and losses are filed on your personal tax return.
Partnership
A partnership is a business were more than one person (two or more) forms a business. Each person contributes an equal share in monies, property, labor, and expects to share in the profits and losses of the business. A partner is not an employee of the business. This type of an agreement needs to be documented and agreed on by both partners. It should spell out the operations of the business and each partners responsibilities. It is recommended not to form a partnership without a partnership agreement.
LLC (Limited Liability Corporation)
An LLC is a form of a corporation where members have limited personal liability for the debt and actions of the LLC. This is a new and popular way to structure your business in many states. It would be wise to research your particular states statutes for an LLC prior to forming. The overall basic idea of this structure is flexibility for its members and the limited personal liability it offers its members. This is a very popular way to structure your business and protect your assets from creditors. Each state may have different criteria for LLC's. Most LLC's can be formed online by the individuals directly with your states government. It is not necessary to have a third-party form the LLC. You will need to read your States rules and regulations for an LLC.
Corporations
Structing as a Corporation or an S Corporation brings benefits for startup businesses that expect to have shareholders. This is not recommended for a new Business however as the business is established and profitable this business structure may be appropriate for the business. If the business is seeking funds to operate and wants to sell stock or shares in the company to raise capital this may be the way to go for the business. This is a business structure you will need your Attorney or CPA involved.
You can research more on these business structures at www.e-business-startup-solutions.com or check out the government websites.
