Choosing a Legal Structure for your Business
Posted by Pierre de la Fortune on July 04, 2015 @ 12:01 a.m.
Written by HG.org, LLC
When beginning a business, you must decide what form of business entity to establish. Your form of business determines the amount of regulatory paperwork you have to file, your personal liability regarding investments into your business, and the taxes you have to pay. You may need to contact several federal agencies as well as your state business entity registration office.
Business Structure Basics
Of all the decisions you make when starting a business, probably the most important one relating to taxes is the type of legal structure you select for your company. Not only will this decision have an impact on how much you pay in taxes, but it will affect the amount of paperwork your business is required to do, the personal liability you face and your ability to raise money.
Choosing a Business Structure - SBA
One of the first decisions that you will have to make as a business owner is how the company should be structured. This decision will have long-term implications, so consult with an accountant and attorney to help you select the form of ownership that is right for you.
Choosing the Legal Structure of Your Business
Part of keeping your home-based business legal involves choosing the legal structure for it: sole proprietorship, partnership, or corporation. Aside from being necessary for government reporting and tax purposes, this can enable your business to operate more efficiently. Since each legal form has its own unique characteristics, your goal is to choose the form that works best for you.
Comparison of Five Business Structure Alternatives for Closely-Held Joint Ventures
University of Wisconsin Center for Cooperatives comparison table of the following business structures: Partnerships, Limited Liaility Companies; S Corporations, C Corporations, and Cooperative Cooperations.
How to Hire an Attorney - Essential Professionals for New Businesses - An Accountant and a Lawyer
There are two professionals every business will need early on: an accountant and a lawyer. The reasons for hiring an accountant are pretty obvious--you need someone to help you set up your "chart of accounts," review your numbers periodically, and prepare all of your necessary federal, state and local tax returns. The reason for hiring a business attorney may not, however, be so apparent. A good business attorney will provide vital assistance in almost every aspect of your business, from basic zoning compliance and copyright and trademark advice to formal business incorporation and lawsuits and liability.
Legal Aspects When Launching your USA Business
Starting a business in the United States involves various legal aspects such as a basic understanding of the federal and state legal systems, business immigration, corporate law, labor legislation and so on. This is not a section created by lawyers, but rather a high-level perspective on law and common basic sense about legal issues in the United States.
Sole Proprietorship Information
About Sole Proprietorships
Sole proprietorships are the most common - and simplest - form of business organization. Sole proprietorships are owned by one person who is generally also responsible for the business’s day-to-day operational responsibilities. Sole proprietors operate in many different capacities, including full and part-time businesses, individually run businesses or those with employees, and traditional, home-based, or online businesses in all different industries. Sole proprietors own all assets and profits of the business and also assume complete responsibility for business liabilities and debts.
Filing Tax Forms for Sole Proprietorships - IRS
A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. If you are a sole proprietor use the information in the chart below to help you determine some of the forms that you may be required to file.
Starting a Sole Proprietorship
A sole proprietorship is an unincorporated business organization that's owned and operated by an individual. Sole proprietors do not run their operations through separate legal entities (such as corporations). They can sell goods or services; they can also be self-employed freelancers, independent contractors (ICs) and consultants who provide their services to other businesses. There are over 17 million sole proprietorships in the United States, comprising well over 70% of all the nation's businesses. This isn't surprising since it's the easiest, fastest and least costly way of going into business.
Business Partnerships Information
When two or more people decide to join together to carry on a trade or business, their relationship is considered to be a partnership. In general, each partner contributes to all aspects of the business including money, property, and labor or skill. In return, each partner shares in the profits and losses of the business.
Business Partnership Agreement
Entrepreneurs planning to form a business partnership should consider having a written partnership agreement, also known as the articles of partnership. Under the Uniform Partnership Act, a partnership agreement may be written, oral or implied. Although there is no legal requirement for a partnership to be formed by written agreement, business attorneys typically recommend that persons looking to form a business partnership have a formal written agreement.
General Partnership - Definition
In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features: * Created by agreement, proof of existence and estoppel. * Formed by two or more persons * The owners are all personally liable for any legal actions and debts the company may face.
Partnership Law - Overview
A partnership is a for-profit business association of two or more persons. Because the business component is defined broadly by state laws and because "persons" can include individuals, groups of individuals, companies, and corporations, partnerships are highly adaptable in form and vary in complexity. Each partner shares directly in the organization's profits and shares control of the business operation. The consequence of this profit sharing is that partners are jointly and independently liable for the partnership's debts.
C and S Corporation Information
A corporation is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts incurred by the business. A corporation is an independent legal entity. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts incurred by the business.
Difference Between an S Coporation and C Corporation
When starting a business or changing your business structure, one of the most common options small business owners evaluate is whether to form an S corporation (S corp) or C corporation (C corp). These are the two most common ways to incorporate online, and the choice really depends on your business goals.
Employer and Tax Identification Numbers
All businesses are required to pay federal, state, and in some cases, local taxes. Most businesses will need to register with the IRS and state and local revenue agencies, and receive a tax ID number or permit.
Filing Tax Forms for Corporations - IRS
In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.
How Subchapter S Corporations Get Taxed
People often think that S corporations are complicated. That’s not really true in most cases, however. S corporations are actually less complicated, in many ways, than partnerships and than limited liability companies treated as partnerships.
S Corporation - Overview
An S Corporation or S Corp is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation.
Taxation of S Coporations - IRS
S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.
The Tax Implications of C Corporations
A C corporation is a legal entity that exists separately from its owners and is taxed as a separate entity. As a result, C corporations are subject to double taxation: the corporation pays income tax on its profits, but the shareholders must also report their dividends on their personal income-tax returns.
Limited Liability Company Information
Complete Guide to Limited Liability Companies
Forming your company into a Limited Liability Company has specific benefits, particularly if you want to protect your members' exposure to liability. An LLC protects its members from lawsuits and debts, and provides for "pass through" taxation with the flexibility of a sole-proprietorship or partnership in terms of management and operations.
Frequently Asked Questions Related to LLC's
Limited Liability Companies are a relatively new concept in business structures and taxpayers have many questions regarding how becoming an LLC affects their tax return. Since the federal government does not recognize an LLC as a classification for federal tax purposes, such entities must figure out how they should file their federal returns. Here are three of the most common questions about LLCs.
Limited Liability Company (LLC) - IRS
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Plan for Changes in LLC Ownership with Buy-Sell Provisions
Contrary to popular belief, a buy-sell agreement is not about buying and selling companies; rather, it is a binding contract between business owners. A buy-sell agreement is made up of several clauses in your written operating agreement (or it can be a separate agreement that stands on its own) that control business decisions.
Starting a Limited Liability Company (LLC)
A limited liability company is a hybrid-type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The “owners” of an LLC are referred to as “members.” Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations, other LLCs, and even other entities.
The Basics of Operating Agreements
Forming an LLC, or limited liability company, can be a very attractive option if you're looking for a business structure with increased personal protection and less formalities. Keep in mind that they do require some additional paperwork, including, an operating agreement. Here are the basics every LLC owner should know about operating agreements:
Nonprofit Corporations Information
Application for Recognition of Exemption
To apply for recognition by the IRS of exempt status under section 501(c)(3) of the Code, use Form 1023, Application for Recognition of Exemption and its instructions. The application must be complete and accompanied by the appropriate user fee. See Application Process for a step-by-step review of what an organization needs to know and to do in order to apply for recognition by the IRS of tax-exempt status.
Benefits of Incorporating Your Nonprofit Association
Related Articles * Understanding a 1031 Exchange * What IRS ID Do I Need for My Business? * Small Business Caught Betwixt and Between on Tax Overhaul The term "nonprofit" is loosely applied to organizations that are formed in order to benefit the public. Many of these organizations choose to formally become nonprofit corporations, formed under the laws of a particular state. Many of the issues and procedures involved in setting up a for-profit corporation also apply when setting up a nonprofit corporation.
Earning Income as a Nonprofit Corporation
Nonprofit corporations, by definition, exist not to make money but to fulfill one of the purposes recognized by federal law: charitable, educational, scientific or literary. Under state and federal tax laws, however, as long as a nonprofit corporation is organized and operated for a recognized nonprofit purpose and has secured the proper tax exemptions, it can take in more money than it spends to conduct its activities. In other words, it can make a profit. Whether a nonprofit’s income is taxable depends on whether the activities are related to the nonprofit’s purpose.
How to Start a Non-Profit Organization
If your passion is to inspire, make a difference and give back to the world, then starting a non-profit is an exciting entrepreneurial proposition. But before you start there are a few things to consider. Starting a non-profit organization (NPO) is similar to starting any kind of business - together with commitment you need a clear objective, a niche (i.e. an original, unclaimed idea) and a communicable business plan to present to your donors. You'll also need to understand how to structure your non-profit, what tax exemptions you may qualify for, as well as how you can obtain government grants.
Non Profit Organizations - Overview
A Non Profit organization (NPO) is a business entity where making a profit is not a primary mission. Typically, Non Profits are engaged in charitable, educational, religious, or artistic activities of public or private interest. Since Non Profit organizations cannot distribute profit to their directors, officers, or members (those who participate in the management of the Non Profit) any income generated by the Non Profit must ultimately go back into the organization. However, Non Profits can hire and pay staff to carry out operational and administrative functions.
Nonprofit Corporation - Definition
A business organization that serves some public purpose and therefore enjoys special treatment under the law. Nonprofit corporations, contrary to their name, can make a profit but can't be designed primarily for profit-making.
Nonprofit Corporation Basics
All sorts of groups, from artists and musicians to people active in education, health, and community services wish to operate as nonprofit (or not-for-profit) corporations. Often the reason for doing this is simple — nonprofit status is usually a requirement for obtaining funds from government agencies and private foundations. Obtaining grants, however, is not the only reason to incorporate. Here, we discuss two additional important benefits of forming a nonprofit — tax-exempt status and personal liability protection.
Tax Information for Charities and Other Non-Profits
Organizations that meet the requirements of Internal Revenue Code section 501(a) are exempt from federal income taxation. In addition, charitable contributions made to some section 501(a) organizations by individuals and corporations are deductible under Code section 170.
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