Having a great business idea is all well and good, but nothing is going to happen until you make your small business official by registering it with the government. But before you can do that, you’ve got to determine what kind of entity your small business is going to be.
Determine your legal business structure
Your business structure legally affects everything about your small business, from how you file your taxes to your personal liability if something goes wrong.
Don’t set up your business before you talk to an accountant or you could end up paying too much in taxes. Schedule a no-obligation consultation with an expert from 1-800Accountant.
If you own the business entirely by yourself and plan to be responsible for all debts and obligations, you can register as a sole proprietorship. Be warned that this route can directly affect your personal credit.
Alternatively, if you are going to be sharing the responsibilities and obligations with someone else, you can register as a partnership.
A partnership, as its name implies, means that two or more people are held personally liable as business owners. You don’t have to go it alone if you can find a business partner with complementary skills to your own. It’s usually a good idea to add someone into the mix to help your business flourish.
If you want to separate your personal liability from your company’s liability, you may want to consider forming one of several types of corporations. Doing so will make the business a separate entity apart from its owners.
Corporations can own property, assume liability, pay taxes, enter into contracts, sue and be sued like any other individual.
One of the most common structures for small businesses, however, is the limited liability corporation (LLC). This hybrid structure has the legal protections of a corporation while allowing for the tax benefits of a partnership.
Corporations, especially C-corporations, are especially suitable for new businesses that plan on going public or seeking funding from venture capitalists in the near future.
Ultimately, it is up to you to determine which type of entity is best for your current needs and future business goals. If you’re struggling to make up your mind, it’s not a bad idea to discuss the decision with a business or legal adviser.
Register with the government and IRS
To become an officially recognized business entity, you must register with the government.
Corporations will need an “articles of incorporation” document, which includes your business name, business purpose, corporate structure, stock details and other information about your company.
Otherwise, you will just need to register your business name, which can be your legal name, a fictitious “doing business as” name (if you are the sole proprietor), or the name you’ve come up with for your company. You may also want to take steps to trademark your business name for extra legal protection.
After you register your business, you may need to get an employer identification number (EIN) from the IRS. While this is not required for sole proprietorships that don’t have employees, you may want to apply for one anyway to keep your personal and business taxes separate, or simply to save yourself the trouble later if you decide to hire someone else. The IRS has provided a checklist to determine whether you will require an EIN to run your business.
You also will need to file certain forms to fulfill your federal and state income tax obligations. The forms you need are determined by your business structure. Some businesses may also require federal or state licenses and permits to operate
