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ST-01 Forms of Business SCORE
Chapter 570 |
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Forms of Business |
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How you form your business must be one
of your first consideration and it will have a direct bearing on many of the
things you will have to do as you precede. There are now 4 basic forms of
business available in Sole
Proprietor The
simplest and most common form of business used by most small, independent
businesses is referred to as a "Sole Proprietorship." This is one
where there is only one owner and no other structure has been designated. As
a sole proprietor, your income (or loss) from the business will be reported
on Schedule C of your tax return and any profit of loss will then be included
on your 1040 form along with any other regular income. NOTE: you will also be
required to report this income on a "Self Employment" form and pay
an additional 15.2% Self Employment Tax. If
you operate your business under a fictitious name (any name other than your
own last name) you must file a "Fictitious Name Registration" with
the state. You may not need a separate EIN number with IRS. You
are fully responsible for all bills or liabilities that the business incurs.
Insurances, to protect your personal property, should be carefully selected
in this form of business. Partnerships When
more than one person is involved in a business it becomes a partnership.
NOTE: In a partnership each partner is responsible for the total debts of the
partnership and any partner can incur expenses or make agreements that bind
the other partners. It is extremely important that a proper partnership
agreement is drawn up to avoid problems down the line. Partnerships
require a separate tax return, though profits do flow through to your regular
tax form, according to the amounts agreed to in your agreement. In
general all partnerships require a "Fictitious Name Registration"
unless each partners name appears in the company name. An EIN Number is
required by IRS. Partners automatically cease
to exist upon the death of any partner and paying the deceased partner's
heirs the money
due them could be a problem unless steps are taken to provide for this
occurrence. Insurance is most important in this type of business. Corporations A
Corporation can best be described as "Another Person." Corporations
are formed by each state and they all have slightly different features. When
you form a corporation in Separate
Corporate tax forms must be filed. If you do not employ a competent
accountant you may face double taxation on corporate dividends. You
will become an employee of the corporation and as such must pay all required
withholding taxes and carry workers compensation insurance on yourself. A
major advantage of a corporation is that your personal assets are shielded
and the corporation is responsible only up to the capitalization of the
corporation. NOTE: When borrowing funds most institutions will require your
personal guarantee on the loan which will hold you personally responsible in
the event of corporate failure. S-Corporation is a special type of
corporation which you must elect at a given time. It provides special tax
benefits to small businesses. Be sure to ask your accountant about this
option. Limited Liability Companies LLC is the latest form of business adopted by the state
during the last year. It provides small businesses with many of the
advantages of a corporation without the tax disadvantages. Like a
partnership, it ceases to exist upon the death of a shareholder. Some of its
strengths and weaknesses have yet to be tested. You should explore this
option carefully with your Accountant and Lawyer. Many are advising
waiting until the law is fully tested, appraised and perhaps modified before
entering into it. |
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