With the new year, comes new goals and endless possibilities. For many of you, starting a new business is on the top of your To-Do list for 2020. You have your idea, great – you figured out a catchy name – awesome – but how will you register your business with the local and federal government?
Business registration is very important as it establishes your business as a legal entity and provides a layer of legal protection.
Typical Business Forms:
- A Limited Liability Corporation (LLC) provides personal liability protection and is a formal business structure. Under an LLC, a company owner may have to pay unemployment compensation for themselves. There are different restrictions and requirements for LLCs that have single or multiple members. When it is set up properly, an LLC can be taxed like a partnership, which is an advantage.
- A Sole Proprietorship is an unincorporated business with one owner, where all income and losses are taxed on the individual’s personal income tax return. This means the owner is personally responsible for all of the company’s debt. Sole proprietorships are easy to form, easy to dissolve and the owners enjoy sole control of the business profits.
- A Corporation is a closely held corporation where profits and losses are passed directly to shareholders of the corporation. It is the most flexible type of company. The owners are protected against legal action, should a lawsuit surface. Corporations are required to appoint a board of directors, hold regular meetings and etc. Income is taxable as both personal and business revenue.
- A Partnership is formed with two or more individuals through a written agreement. This type of entity can have their own unique set of tax and liability issues. All individuals share the same responsibilities, good or bad.
- An S-corporation is not a type of business structure but does provide tax benefits. An S-corporation protects the personal assets of its shareholders. An LLC can elect to be treated as an S-Corporation but must file the proper documents with the IRS and must be approved.
Please note: The content herein is legal information and does not constitute legal advice. Consult both your lawyer and tax advisor for the requirements of the state or jurisdiction where you intend to headquarter your business.