people are attracted to the idea of working online because it?s pretty easy to get started.? Just register a domain, get a hosting account, install WordPress and you?re in business, right?? Wrong. There are a few legalities that need to be addressed too.? Near the top of that list is choosing the right legal structure for your business.
A legal business structure is required for a lot of reasons, including income tax benefits and protection of your personal assets ? both things that should not be overlooked when you?re in business for yourself. But, figuring out which entity type fits best can be overwhelming.? Let?s take a look at some of the most common types found in the U.S.
Sole Proprietor. Many people start off with this type of structure because it?s the simplest.? Essentially one just has to declare they are in business and poof!? They are in business.? In this type of entity there is no distinction between the assets or liabilities owned by the business versus the owner.? There isn?t a separate income tax filing required although there may be extra forms to complete for your personal income taxes.
Many recommend that you still obtain an employer identification number to help prevent identity theft.? Your state or local government might require you to register a DBA (doing business as) name, especially if you plan to conduct business in any name other than your name, as well.? The state or local government may also require that you register, usually for the purpose of collecting state sales tax.? Some jurisdictions require this even if your receipts (the money you make) doesn?t require the collection of sales tax.
While this is the structure that many online entrepreneurs start out with, it?s not necessarily the best long term solution.? There is no personal protection as a sole proprietor.? Your personal assets aren?t protected in the event you are sued.? Likewise you remain personally responsible for any debt the business may have.
Limited Liability Company (LLC) An LLC offers many of the advantages of forming a corporation while being almost as easy to establish as a sole proprietorship.? An LLC offers personal asset protection and doesn?t require you to complete a totally separate income tax return.? It is important,? however, to clearly separate your business from your personal finances. Not doing so can leave your assets vulnerable if you are sued.
In most states you can establish an LLC for a small fee by filing some paperwork with your secretary of state?s office. If legal jargon isn?t your thing or you cringe at the thought of government forms and processes you might have an attorney do this for you.? You don?t have to break the bank to get this done.? Consider a professional service like LegalZoom.com who can handle all the paperwork at a very reasonable rate.? They will even file for your federal tax ID (EIN) number at the same time.
Corporation. Starting and maintaining a corporation is more complicated than an LLC.? However, it does have some added benefits.? For instance, a corporation can sell shares to raise funds.? Corporations come in two major varieties; S-Corp and C-Corp.? The major distinction between these two are in how they are taxed.
An S-Corp is taxed just like an LLC.? This means that all profits and losses are claimed on the owner?s personal tax returns. A C-Corp is taxed as an entity itself, and any income you pay yourself (as payroll) is also taxed on your personal return. Choosing the right option for you and your business can be complicated.? It is strongly recommended that you speak to an attorney or accountant, or consult with LegalZoom.com.
Laws vary from state to state, and occasionally change.? Before you choose a business structure do your homework.? Other small business owners can often point you in the right direction.? You can also check out the documentation available at LegalZoom.com, and search your own state?s online documentation as well (the Secretary of State is usually a good place to start.)? But, don?t neglect this step.? After all, operating as a real business is the foundation of your online empire!
Source: http://www.operationbob.com/choosing-a-business-structure/
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