In other words… Nonprofit, Corp, LLC- find out different options for making your startup official!
After forming a business plan, you will need to choose a type of entity in order to make your small business official. Let’s talk about the most common entity forms, and the steps you should follow to turn your business idea into a reality.
This is the simplest way of structuring your small business to protect personal assets. Over 80 percent of small businesses are LLCs, and for many good reasons. With less requirements and more flexible ownership options than the other entities, LLCs provide business owners with limited liability protection. This means that the company assets are typically owned by the LLC and are separate from the personal assets from that of the LLC owners.
This is a great option for those who want to minimize risk when starting their business along with more management flexibility and less complex tax filings. If you happen to go into debt, your personal assets are protected and won’t be used to pay for outstanding business expenses. Additionally, your net income or loss is “passed through” to the personal income of the owner or member and is simply taxed as personal income for state tax returns and federally taxed as a partnership or as a sole proprietor.
An S corporation is a special type of corporation that draws its designation from Subsection S of the tax code. S-Corps do have more operating requirements and ownership restrictions than an LLC, but they also have significant advantages. One advantage of the S Corporation is that like the LLC it receives pass-through taxation.
Unlike an LLC, forming an S Corporation can give you the ability to minimize payroll and self-employment taxes, resulting in significant savings in certain situations. The company is separate from the shareholders, allowing them to sell shares without impacting the business.
A C Corporation, or C-Corp often just called a generic corporation is the oldest and one of the most common business entities. A C Corporation is a completely separate tax and legal entity from its owners. The business itself is legally liable for actions and debts rather than the shareholders.
While all business entities can provide fringe benefits to its owners and/or employees, the C-Corp allows for a greater range of fringe benefits. Forming a C-Corp is also advantageous to corporate tax treatment and income splitting. The tax rate on corporate income is usually lower than the tax rate on personal income up to the first $75,000 in income. The owners can arrange salaries and bonuses in conjunction with retained corporate earnings to lower their overall tax rate.
This is an organization established to give back to the community or help those in need of a particular service. A Non Profit is also eligible for tax breaks. A Non Profit corporation is a corporation whose principal purpose is public benefit. It provides a shield against potential liability for its directors, officers, and employees.
Despite this entity’s name, a Non Profit Corporation may generate a profit. Non Profit does not literally mean that your corporation cannot make a profit. A Non Profit Corporation can acquire more income than it spends on its exempt purpose. This profit can be utilized for operating expenses, including salaries.
Is your Business Name Available?
Once you’ve decided on the entity type, you’ll need to come up with a creative and catchy name for your small business. You want the name to be easy to pronounce but also a name that makes a statement.
Make a list of all possible names that you would like. After you have this list, you need to find out if the names are available. Your small business name needs to be unique in your state, so don’t get your heart set on a particular name before running a search.
Register your Business
After you’ve settled on the perfect name that’s available, the next step is to simply register your business. You need to fill out some forms and pay the required fees. This part can be tricky but LegalZing will help you file the necessary forms for free on your first LLC! You just need to pay for the State Filing Fees which is required for each entity formed.
Business License Requirements
As a small business owner, you are responsible for making sure your business has the proper federal, state and local licenses and permits to operate legally. A business license is a certificate that authenticates that your company is properly registered with the particular county or city in which your office is located. Every new business must apply for a business license, and your corporation or LLC may need more than one license or permit to fully operate at the state level.
If you operate from home or plan to remodel a space, for example, you’ll need to obtain permits to do so. Other permits may cover serving alcohol, displaying a sign on the building exterior and even designating parking for your business. Check out this link to research your local zoning and operating laws.
Let’s be real. Taxes are complicated. And, filing your business taxes can be more difficult than personal taxes. Filing a business tax return is part of the annual requirements for managing your small business taxes. If you know this is one of your weak spots then you should plan on getting help so you can avoid the headache.
When tax season arrives, it’s important to understand your options for filing business taxes. IRS requirements for small business taxes can be complex, and details will depend on the type of business entity you form.
Ongoing Filing Requirements
After filing all this initial paperwork, there’s ongoing filing requirements that you must complete in order to maintain good standing with your state. Each state prescribes specific rules regarding when Annual Reports and franchise tax reports are due. Many states require the Annual Report to be filed on the anniversary month of the company’s date of formation, while some states set a specific filing date for corporations and another for LLCs.
Pro Tip: Don’t rush over the important steps of officially setting up your setting up your business. You need to start with a solid foundation to build.
This all might sound overwhelming, but don’t let that stop you from accomplishing your goals and dreams. That’s what LegalZing is all about! Let us take care of the nitty gritty details, and you can handle what you love the most about your small business.