Coming your way, more great small biz tips from the Small Business Association (SBA)! Featured writer and small business owner Caron Beesely answers the top 10 questions you may have about incorporating a small business. Read on?
Thinking of incorporating your business? Have questions about which business entity is right for you ? limited liability company (LLC), S Corporation, partnership, or sole proprietor? Maybe you?re moving out of state and aren?t sure what happens to your business entity? For answers to these and other important facts about business incorporation, check out these 10 frequently asked questions:
What?s the best option for small business owners, an LLC or an S Corporation?
LLCs?and?S Corporations?are two very popular forms of incorporation, and both offer liability protection and pass-through income tax treatment for business owners, since taxes are reported on your personal income tax return, not by the entity. Which is best for you? Among the issues to consider are the number of owners involved, what you can and cannot write-off for tax purposes, the amount of employment tax you may be required to pay, and individual state tax laws. To help you decide, read?The Better Choice for Entity Selection: LLC or S Corporation?
I?m a freelancer. Do I need to incorporate?
Legally, the answer is no. In fact, over 70 percent of U.S. businesses are owned by sole proprietors and operate successfully without incorporating. However if you need liability protection to protect personal assets if a client sues you, potential tax savings (at a price), or a loan to grow your business in the future, then incorporation might benefit you. This blog also explains a little more about why you may wish to incorporate:?Should You Incorporate your Freelance or Consulting Business?
Which state should I incorporate in?
Typically, if you only operate in one state, you should incorporate in that state. If you operate in multiple states, you should determine which state is the friendliest to corporations and incorporate in that state. Read more in?How to Choose the Best Location for your Business.? File your articles of incorporation in the state where you intend to incorporate ? usually with the Secretary of State?s office and for a fee, depending on where you live. Check your state website for more information.
I?m forming an LLC. What documents do I need?
Each state has specific guidelines for forming an LLC, but they all adhere to the same general principles (explained on SBA.gov?here). Whichever method you choose and no matter where your LLC is formed, you?ll need to complete two specific documents to legally form your LLC: your?Articles of Organization?and your?Operating Agreement. Check this?blog?for a quick overview of what you need to know about these key documents.
How do I form a legal business partnership?
Partnerships?are unincorporated businesses and you don?t have to file any paperwork to create one, although it is a good idea to put a formal partnership agreement into writing and run it past an attorney. You?ll also need to?register it?with the IRS and your state and county for tax purposes, and you?ll want toregister your ?Doing Business As? name. Many partnerships formalize their business entity as an?LLC. An LLC protects the partners by reducing their liability for business debts while still allowing profits to pass through to them.
What kind of legal entity should a married couple in business operate as?
Married couples in business?may form any kind of legal entity they choose and many opt for an?LLC. However, for federal tax purposes, an?unincorporated business?jointly owned by a married couple is classified as a?partnership. This classification stands on the assumption that each spouse has an equal say and share of business affairs. However, eligible couples can file as sole proprietors for federal tax purposes. Under this provision, each spouse must separately report a share of all business income, gains, losses, deductions, and credits. Both will receive credit for Social Security and Medicare.
To be considered a ?qualified joint venture,? your business must meet the following three conditions:
- A husband and wife must be the only members of the joint venture and file a joint return
- Each spouse materially participates in the business
- Both spouses agree not to be treated as a partnership
I operate an LLC. What happens if I move to another state?
It?s always best to consult an attorney if you are moving your LLC to a new state because there are several options that require careful consideration, for both online and bricks and mortar businesses:
How do I pay myself in an LLC structure??.
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