Helpful Information for Small Business

Choice of Entity
There are a range of choices available for operating your business. Here is a brief description of the primary choices.

Sole Proprietor - No limited liability, all income taxed for social security taxes, taxed as part of your personal tax return at personal tax rates. File an assumed name form with your state or country official.

General Partnership - No limited liability, all income taxed for social security taxes, each partner reports his or her share of the profits on their personal tax return, taxed as part of the partners' personal tax return at personal tax rates.

Limited Partnership - Must have one or more general partners (no limited liability) and one or more limited partners (who can benefit from limited liability), each partner reports his or her share of the profits on their personal tax return, taxed as part of the partners' personal tax return at personal tax rates. General partners pay social security taxes on all their income, limited partners do not.

Limited Liability Company - The newest form of entity, the LLC was initiated in Wyoming and is now in most states. Owners are referred to as Members. Active members are taxed like a general partner, non-active members are taxed like limited partners, all members benefit from limited liability, each member reports his or her share of the profits on their personal tax return, taxed as part of the partners' personal tax return at personal tax rates.

C Corporation - Limited liability, active owners take salary that is subject to social security taxes and other payroll taxes, corporate profits taxes at corporate tax rates (15 percent to 39 percent)

S Corporation - Limited liability, active owners take salary that is subject to social security taxes, corporate profits reported on shareholders' personal tax returns, taxes as part of your personal tax return at personal tax rates, corporate profits are not subject to social security tax.

Before deciding upon a type of entity, you should also consider whether the business will need to reinvest profits, how long you intend to operate the business and what assets can be kept outside the entity, e.g., building owned by you and rented to a corporation that operates the business.

Checklist of New Business Filing Requirements

• Federal ID number
• State ID number
• State unemployment
• State withholding
• Sales taxes
• Use taxes
• Workers' compensation insurance
• Liability insurance

Incorporation Steps

• File articles with Secretary of State
• First meeting of stockholders and directors should be held immediately
• Adoption of by-laws
• Issue stock certificates
• Open corporate bank account
• Buy-sell agreement
• File for S Corporation status with IRS (if desired)