The simplest business structures
The two simplest structures to set up are a sole proprietorship or a general partnership. Simpler as you will see below is not necessarily better.Read More
For a sole proprietorship, in the United States, you should check with your county government office to obtain the details of registration. If you are in an area of low risk, and your advice or work is not likely to be associated with substantial liability this may be just the structure for you. It is best to check with a lawyer. As a sole proprietor, there is no difference between your personal liability and that of your business.
You could form a general partnership with a colleague who has complementary or similar skills. If the demand for your services is more than you can handle, having a partner could be an attractive option. The rate at which work comes in may be uneven, and your partner could step in when you are too busy. You may even like to go on vacation without having to say no to new projects, or working through your “time off.” Sounds good, doesn’t it? The problem, though, with general partnerships is that from a liability point of view, there is no difference between you, your partner or your business. This is even worse than a sole proprietorship. You would be better off having someone else take care of the business side, including liability insurance, than have a sole proprietorship or general partnership.
Better business structures
It is good to get advice from a lawyer and an accountant sooner rather than later, if you are establishing a business. An accountant can give important advice about your taxes. You might discuss with them whether a limited partnership (LP), a limited liability company (LLC), or a corporation might be best.Read More
A limited partnership has two types of partners, general partners and limited partners. The general partners are responsible for managing the organization, and can make obligations on behalf of the partnership. General partners are also liable for the partnerships actions and obligations. Limited partners are liable to the extent of the money that they put into the organization, provided that they are not actively involved in the affairs of the partnership. To avoid liability problems, the limited partnership can have a corporation or LLC as general partners. Forming a limited partnership that provides good liability protection is more complicated than forming either an LLC or a corporation. The LLC tends to be favored in the real estate business and is not allowed for certain organizations, such as banks.
Incorporating is attractive. There are two types of corporations, C or S corporations. The individuals in a C corporation are taxed on their own income and the corporation is taxed resulting in double taxation. For S corporations, there is a pass through tax. The tax passes through to the owners resulting in single taxation. The profits and losses of the S corporation would be paid on your personal income tax. Unlike sole proprietorships or partnerships, the LLC, C corporations, and S corporations have good liability protection. But you have to carefully follow the regulations, including annual meetings and careful separation of your personal finances to avoid losing your liability protection. For more information to help you decide about the best business structure for you, there is excellent information at the Internal Revenue Service website, and the US Small Business Administration site, too.
Register your business
A number of services online can file an LLC or corporation for you. The prices are less than lawyers’ fees, but try to find out more about the services before using them.You could try Intuit’s incorporation service, MyCorporation – from the small business experts at Intuit, maker of Quickbooks and TurboTax. You may also consider LegalZoom or other services.
Remember, though, while there are services that will handle the paperwork for incorporation, this is not the same as having a lawyer. To find a lawyer, get advice from business associates or others you know. You can also find a lawyer though the The American Bar Association (ABA) site that has information for finding a lawyer in the United States or Canada. As you get involved in day-to-day correspondence can obtain Legal Forms and general guidelines about what should be included in them.
Know your tax responsibilities
In addition to understanding the legal implications of your business, it is important to know your tax responsibilities. You can receive tax advice and services from a Certified Public Accountant (CPA) or an Enrolled Agent. To be an Enrolled agent requires passing an Internal Revenue Service examination and a background check by the IRS. Click on the links to find a CPA or an Enrolled Agent.Read More
The IRS has considerable information on your tax responsibilities and lots of helpful educational information and training for small business, including video seminars. We thank Digital.com, which also has useful information for small business and self-employed individuals on their site for pointing out that the IRS had moved the information to a new site. Also, the US Small Business Administration has a amount of free, useful information and links, grants and other forms of assistance for small and startup businesses. It is well worthwhile taking a deeper dive into their sites.
Get a tax number
As soon as you have the paperwork from the state in which your business is registered, you should get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). You need this even if you don’t employ anyone. Go the IRS site for Small Businesses and Self-Employed for more general information and for instructions to complete your EIN application online. Within moments of completing your application, you will receive a letter with your tax number.
Separate your business from your personal finances
First set up a separate small business account with your local bank and obtain a business credit card.
While you can use paper to record your finances, consider getting user friendly accounting software such as Intuit Quickbooks. Other accounting software is available, but Quickbooks has training courses and experts online who can help you get set up. While using accounting software do not require much knowledge of accounting, it is useful to have an accountant set up your initial chart of accounts. This is a listing of all the accounts of your business and is the way in which you would categorize all the money coming in and going out. Digital.com has information on their blog about accounting tools.