1. 1. Consider organizing your business as a limited liability corporation (LLC) to reduce your personal risk in the business
o LLC allows owners (members) to operate their business without the risk of losing more than their investment.
o LLCs have more flexibility that corporations while keeping some of the benefits corporations enjoy such as raising funds, adding new members, and limiting liability.
o Members can be either active or passive without jeopardizing their limited liability status.
o LLCs are federally taxed in a similar as partnerships.
2. Consider a sole proprietorship if you are the only owner and your business is not likely to expose you to risk or if your risk will not be shielded
A sole proprietorship is a business enterprise that is owned and managed by a single person. Minimal legal formalities are necessary to form this type of business, and a sole proprietorship may not have to pay certain state and local taxes. However, the owner of a sole proprietorship is personally liable for company debt.
3. Consider a partnership if your multiple owner business is not likely to expose you to risk or if your risk will not be shielded by a LLC.
o A general partnership is a business enterprise created by an agreement between owners, partners. Partners commonly agree to divide up profits, losses, and assets of the business. Also, each partner has a duty to act responsibly with business finances, and each partner is personally liable for the debts of the business. However, partnerships may not have to pay certain types of state taxes.
o A limited partnership is similar to a general partnership. The difference is that only the managing partners must be general partners while other partners may be limited partners. Limited partners enjoy liability protection that limits their liability to what they have invested in the partnership.
4. Consider organizing your business as a S corporation
o The S corporation is a federal law creation that allows corporations enjoying a pass through status to only be taxed once by the government.
o New business benefit from this status because owners can subtract their start up losses against their supplementary income.
o S corporations may still be taxed by the state.
o One downside to organizing as an S corporation is having to comply with extra regulations.
5. Consult an attorney
You may think that do-it-yourself is the way to go; but don't be surprised if it turns out to be more complicated than you thought! You don't know, what you don't know.