Establish your Business Entity

 

Are you starting a new business? You will need to decide if you want to run your business as a sole proprietorship, a partnership, or a corporation, and whether or not to become an LLC.

 

Here’s a quick reference. An LLC is a legal designation for your company to help protect assets from lawsuits. This protection helps when others do work in your company name. If you do the work, the protection is limited.

 

The LLC formation isn’t recognized as a tax entity so here’s the run down:

  • Single member LLC – tax wise you are a sole-proprietorship or can elect to be treated as a corporation
  • With more than one member – tax wise you are a partnership or can elect to be treated as a corporation

 

If you decide to incorporate, income passes through to you free of self-employment taxes.  One thing to consider first is what type of salary will you be taking, and will the company have any profit left after you pay yourself.

 

Regulations setup certain items you need to do:

  • Regular meetings with minutes taken
  • You must pay yourself a reasonable salary (what would a company pay you for your skills)
  • Balance sheet must be kept up-to-date along with your income statement
  • You will have two tax returns prepared at year end

 

These are a few basic guidelines of what to think about when determining what type of entity to form.  Either an accountant or lawyer can help you determine which entity is a good fit and guide you through the paperwork.

 

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