Should I set up a C corporation or an S corporation?
The major difference between a corporation being a C corporation or an S corporation is that S corporations use the pass-through taxation that partnerships use, while C corporations are subject to double taxation. If this is an issue you are considering, you should meet with an attorney and/or a tax advisor so that you can figure out what works best for your situation. Also, you should remember that this decision is not a permanent one, so if you initially elect to set your corporation up as an S corporation, you can always change it over to a C corporation later. In addition, if you are giving serious consideration to an S corporation because of the pass-through taxation, you should also consider setting up your business as an LLC, which also generally has pass-through taxation.
Monday, January 17, 2011
How many directors should my corporation have?
How many directors should my corporation have?
You can generally have as many directors for your corporation as you determine is appropriate. However, you should always check your state law, particularly if you are considering having just a single director, as some states require its corporations to have at least two directors. The general rule, which should be fairly obvious, is that bigger corporations tend to have more directors, while smaller corporations tend to have fewer. Typically, a corporation can start out with two or three directors. Three directors, or any odd number, is the preferred way to go because it helps avoid running into ties and deadlocks when the directors are voting on issues.
While directors are often owners/shareholders or officers of the corporation, it is usually a good idea to have at least one of the directors be someone who is otherwise unaffiliated with the company, so that they can bring an outside opinion to the table, free from any of the other concerns that may be implicated by a director who is also an officer or a shareholder.
You can generally have as many directors for your corporation as you determine is appropriate. However, you should always check your state law, particularly if you are considering having just a single director, as some states require its corporations to have at least two directors. The general rule, which should be fairly obvious, is that bigger corporations tend to have more directors, while smaller corporations tend to have fewer. Typically, a corporation can start out with two or three directors. Three directors, or any odd number, is the preferred way to go because it helps avoid running into ties and deadlocks when the directors are voting on issues.
While directors are often owners/shareholders or officers of the corporation, it is usually a good idea to have at least one of the directors be someone who is otherwise unaffiliated with the company, so that they can bring an outside opinion to the table, free from any of the other concerns that may be implicated by a director who is also an officer or a shareholder.
How does the limited liability of LLCs work?
How does the limited liability of LLCs work?
One of the biggest advantages to forming a company as an LLC is that, much like C corporations, the owners/members are not personally liable for most losses or debts of the company itself. Thus, there is so-called limited liability and the owners can only, generally, lose whatever money has been invested in the LLC, and nothing more. However, personal liability can attach in certain instances, such as where an owner tries to defraud company creditors or do some other illegal act - in these cases, a court may apply alter ego liability. Similarly, limited liability does not protect an owner for acts taken outside of his or her capacity as a company owner/employee. For example, if an LLC takes out a $500,000 loan and one of its members personally guarantees the loan, the bank could go after that member’s personal assets, despite limited liability. Of course, if a co-owner is the one who has committed some bad deed making them personally liable, you would not be personally liable just for being another co-owner, as long as you did nothing wrong (this differs from a partnership, where you are personally liable for your partners’ wrong-doings).
One of the biggest advantages to forming a company as an LLC is that, much like C corporations, the owners/members are not personally liable for most losses or debts of the company itself. Thus, there is so-called limited liability and the owners can only, generally, lose whatever money has been invested in the LLC, and nothing more. However, personal liability can attach in certain instances, such as where an owner tries to defraud company creditors or do some other illegal act - in these cases, a court may apply alter ego liability. Similarly, limited liability does not protect an owner for acts taken outside of his or her capacity as a company owner/employee. For example, if an LLC takes out a $500,000 loan and one of its members personally guarantees the loan, the bank could go after that member’s personal assets, despite limited liability. Of course, if a co-owner is the one who has committed some bad deed making them personally liable, you would not be personally liable just for being another co-owner, as long as you did nothing wrong (this differs from a partnership, where you are personally liable for your partners’ wrong-doings).
How does the limited liability of corporations work?
How does the limited liability of corporations work?
One of the biggest advantages to the corporate form is that the owners/shareholders are not generally personally liable for any losses or debts of the corporation itself. Thus, there is so-called limited liability and the owners can only, generally, lose whatever money has been invested in the corporation, and nothing more. However, personal liability can attach in certain instances, despite the existence of such limited liability, such as where an owner tries to defraud corporate creditors or do some other illegal act - in these cases, a court may apply alter ego liability or pierce the corporate veil. Similarly, limited liability does not offer protection for acts taken outside of his or her corporate capacity. For example if a corporation takes out a $500,000 loan, and its president personally guarantees the loan, the bank could go after the president’s personal assets, despite limited liability. Of course, if a co-owner is the one who has committed some bad deed making them personally liable, you would not generally be personally liable as long as you did nothing wrong (this differs from a partnership, where you are personally liable for your partners’ wrong-doings).
Corporate directors are generally protected from being personally liable in many situations based upon the so-called business judgment rule.
One of the biggest advantages to the corporate form is that the owners/shareholders are not generally personally liable for any losses or debts of the corporation itself. Thus, there is so-called limited liability and the owners can only, generally, lose whatever money has been invested in the corporation, and nothing more. However, personal liability can attach in certain instances, despite the existence of such limited liability, such as where an owner tries to defraud corporate creditors or do some other illegal act - in these cases, a court may apply alter ego liability or pierce the corporate veil. Similarly, limited liability does not offer protection for acts taken outside of his or her corporate capacity. For example if a corporation takes out a $500,000 loan, and its president personally guarantees the loan, the bank could go after the president’s personal assets, despite limited liability. Of course, if a co-owner is the one who has committed some bad deed making them personally liable, you would not generally be personally liable as long as you did nothing wrong (this differs from a partnership, where you are personally liable for your partners’ wrong-doings).
Corporate directors are generally protected from being personally liable in many situations based upon the so-called business judgment rule.
How do taxes apply to an S corporation?
How do taxes apply to an S corporation?
Unlike a C corporation, which is a separate taxable entity from its owners, an S corporation is not. Thus, tax liability passes through the corporation to the individual shareholders - so the corporation does not pay any taxes on its corporate income and the shareholders simply pay taxes on their share of the corporate income (and similarly, each shareholder can deduct their share of any corporate losses).
You should be careful in this situation, however. While this is true for federal taxes and most state taxes, some states instead treat S corporations like C corporations, using the double taxation method.
Unlike a C corporation, which is a separate taxable entity from its owners, an S corporation is not. Thus, tax liability passes through the corporation to the individual shareholders - so the corporation does not pay any taxes on its corporate income and the shareholders simply pay taxes on their share of the corporate income (and similarly, each shareholder can deduct their share of any corporate losses).
You should be careful in this situation, however. While this is true for federal taxes and most state taxes, some states instead treat S corporations like C corporations, using the double taxation method.
How do taxes apply to a sole proprietorship?
How do taxes apply to a sole proprietorship?
Taxes are not generally a complicated issue for sole proprietorships, as they can be for other forms of businesses. This is because sole proprietorships are not a separate legal entity from their owner and, therefore, do not need to file their own tax return. The business earnings and losses are simply reported on the owner’s personal tax return. So if you own a sole proprietorship, you simply deduct all of your business expenses on your own return and, similarly, report any business earnings as additional personal income.
While it is not necessary that you keep your personal and business finances separate, as it is with most other business entities, it is still a good idea to do so. Similarly, even though the business is not a separate legal entity, you should definitely maintain detailed and careful financial records, to ensure that your tax return is prepared accurately.
Taxes are not generally a complicated issue for sole proprietorships, as they can be for other forms of businesses. This is because sole proprietorships are not a separate legal entity from their owner and, therefore, do not need to file their own tax return. The business earnings and losses are simply reported on the owner’s personal tax return. So if you own a sole proprietorship, you simply deduct all of your business expenses on your own return and, similarly, report any business earnings as additional personal income.
While it is not necessary that you keep your personal and business finances separate, as it is with most other business entities, it is still a good idea to do so. Similarly, even though the business is not a separate legal entity, you should definitely maintain detailed and careful financial records, to ensure that your tax return is prepared accurately.
How do taxes apply to a partnership?
How do taxes apply to a partnership?
Partnerships are generally subject to what is known as pass-through taxation. This means that the partnership, itself, is not directly taxed, and the tax burden is instead passed on to the partners. Thus, the partnership pays its profit earnings to the partners as income, wages and profit payments, and each partner pays the taxes on their individual share of those profits. Similarly, if the partnership took a loss for the year, each partner can deduct their share of that loss from their personal tax return.
This is the same type of taxation that applies to a sole proprietorship, and to most limited liability companies (unless they elect to be subject to the double taxation that generally applies to corporations). This pass-through taxation is particularly advantageous for smaller businesses because (a) the final tax burden may be less then it would be with double taxation and (b) it is often easier to handle.
You should be aware that the partnership itself must still file a tax return, even though it has no tax burden. This return has to indicate the partnership’s finances for the past year, showing how much the partnership made or lost. It also must show how the profits and losses are attributed to each partner, and to the extent any profits were paid, the return must indicate what profits were paid to which partners, and when they were paid.
Partnerships are generally subject to what is known as pass-through taxation. This means that the partnership, itself, is not directly taxed, and the tax burden is instead passed on to the partners. Thus, the partnership pays its profit earnings to the partners as income, wages and profit payments, and each partner pays the taxes on their individual share of those profits. Similarly, if the partnership took a loss for the year, each partner can deduct their share of that loss from their personal tax return.
This is the same type of taxation that applies to a sole proprietorship, and to most limited liability companies (unless they elect to be subject to the double taxation that generally applies to corporations). This pass-through taxation is particularly advantageous for smaller businesses because (a) the final tax burden may be less then it would be with double taxation and (b) it is often easier to handle.
You should be aware that the partnership itself must still file a tax return, even though it has no tax burden. This return has to indicate the partnership’s finances for the past year, showing how much the partnership made or lost. It also must show how the profits and losses are attributed to each partner, and to the extent any profits were paid, the return must indicate what profits were paid to which partners, and when they were paid.
How do taxes apply to a corporation?
How do taxes apply to a corporation?
Most corporations are taxed differently then partnerships and LLCs. Partnerships and most LLCs are subject to pass-through taxation, where the business does not pay any direct taxes and passes any tax liability on to the owners. Corporations, however, are generally subject to so-called double taxation. The corporation pays taxes on its profits, and then the owners/shareholders again pay tax on any income, distributions and dividends they receive (of course, the details of how this double taxation specifically works are substantially more complicated). However, if your corporation meets the requirements, you can elect for it to be an S corporation. While C corporations use the double taxation described above, S corporations use the same pass-through taxation that partnerships and LLCs use.
Most corporations are taxed differently then partnerships and LLCs. Partnerships and most LLCs are subject to pass-through taxation, where the business does not pay any direct taxes and passes any tax liability on to the owners. Corporations, however, are generally subject to so-called double taxation. The corporation pays taxes on its profits, and then the owners/shareholders again pay tax on any income, distributions and dividends they receive (of course, the details of how this double taxation specifically works are substantially more complicated). However, if your corporation meets the requirements, you can elect for it to be an S corporation. While C corporations use the double taxation described above, S corporations use the same pass-through taxation that partnerships and LLCs use.
How do taxes apply to a C corporation?
How do taxes apply to a C corporation?
A C corporation is a separate taxable entity from its shareholders, which means that it must pay taxes on its corporate income (less any business expenses). When the corporation pays dividends or some other form of profit distribution to its shareholders, the shareholders must then pay taxes on those payments. This scheme is known as double taxation, because a tax is applied to what is essentially the same money twice - once at the corporate level and then again at the shareholder level. This differs from the type of taxation that applies to S corporations, which is the same pass-through taxation used by partnerships and LLCs.
Of course, many smaller C corporations are able to avoid paying much, if anything in taxes. This is because with smaller corporations, the shareholders are often also employees so their salaries and bonuses can be deducted by the corporation as a business expense. These deductions often cancel out whatever income the corporation had, leaving it with no tax burden (but the shareholders must still pay their taxes, obviously).
A C corporation is a separate taxable entity from its shareholders, which means that it must pay taxes on its corporate income (less any business expenses). When the corporation pays dividends or some other form of profit distribution to its shareholders, the shareholders must then pay taxes on those payments. This scheme is known as double taxation, because a tax is applied to what is essentially the same money twice - once at the corporate level and then again at the shareholder level. This differs from the type of taxation that applies to S corporations, which is the same pass-through taxation used by partnerships and LLCs.
Of course, many smaller C corporations are able to avoid paying much, if anything in taxes. This is because with smaller corporations, the shareholders are often also employees so their salaries and bonuses can be deducted by the corporation as a business expense. These deductions often cancel out whatever income the corporation had, leaving it with no tax burden (but the shareholders must still pay their taxes, obviously).
How do I set up a sole proprietorship?
How do I set up a sole proprietorship?
It is relatively cheap and easy to setup a sole proprietorship. While other business forms require the preparation of specific business documents, there is no such requirement for a sole proprietorship. Essentially, you simply have to start your business - purchasing inventory, manufacturing your products, etc. In addition, you generally do not have to formally file any documents with state or local government agencies, nor do you have to pay any fees. But you should be careful on this last point, as there are two exceptions. First, if you are going to be using a fictitious business name for your company, you generally must file that name with the state. Second, you may have to obtain certain licenses or permits, depending on the details of your business (for example, if you will be selling alcohol).
It is relatively cheap and easy to setup a sole proprietorship. While other business forms require the preparation of specific business documents, there is no such requirement for a sole proprietorship. Essentially, you simply have to start your business - purchasing inventory, manufacturing your products, etc. In addition, you generally do not have to formally file any documents with state or local government agencies, nor do you have to pay any fees. But you should be careful on this last point, as there are two exceptions. First, if you are going to be using a fictitious business name for your company, you generally must file that name with the state. Second, you may have to obtain certain licenses or permits, depending on the details of your business (for example, if you will be selling alcohol).
How do I set up a partnership?
How do I set up a partnership?
Partnerships are relatively cheap and easy to setup. The basic steps involved for setting up a general partnership (limited partnerships follow the same basic steps, but some of the organizational details tend to be more complicated) are as follows:
1. Figure out which state the partnership is going to be organized in.
2. Figure out whether you are going to set the partnership up on your own or whether you are going to have an attorney help and guide you (it is especially advisable to have the help of an attorney if you are setting up a limited partnership or an LLP).
3. Pick a name for the partnership. In doing this, you should generally do a trademark search, to ensure that someone else is not using the same trade name, and you should also conduct a search of state records for registered businesses, where available, for the same reason.
4. Determine the relationship of the partners to the partnership - that is, work out what percentage ownership each partner will have, how much each partner will invest, what percentage of profit distribution each partner is entitled to, etc.
5. Determine how the partnership is going to be controlled and managed. For general partners, all of the partners usually control the partnership equally, so this is not a complicated matter. However, you may choose to have certain partners act as managing partners, in which case this step becomes more important.
6. Draft a partnership agreement. While it is not necessary to have such a written agreement, it is highly advisable.
7. Decide whether to draft and file a statement of partnership (for a general partnership) or a certificate of limited partnership (for a limited partnership).
8. Obtain a federal tax ID number (known as the employer identification number) for your partnership. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have a federal tax ID number to conduct many transactions on behalf of the partnership (opening a bank account, for example).
9. Check the state and local laws to determine if there are any other registrations you must make, or any licenses or permits you must obtain to operate your business.
Partnerships are relatively cheap and easy to setup. The basic steps involved for setting up a general partnership (limited partnerships follow the same basic steps, but some of the organizational details tend to be more complicated) are as follows:
1. Figure out which state the partnership is going to be organized in.
2. Figure out whether you are going to set the partnership up on your own or whether you are going to have an attorney help and guide you (it is especially advisable to have the help of an attorney if you are setting up a limited partnership or an LLP).
3. Pick a name for the partnership. In doing this, you should generally do a trademark search, to ensure that someone else is not using the same trade name, and you should also conduct a search of state records for registered businesses, where available, for the same reason.
4. Determine the relationship of the partners to the partnership - that is, work out what percentage ownership each partner will have, how much each partner will invest, what percentage of profit distribution each partner is entitled to, etc.
5. Determine how the partnership is going to be controlled and managed. For general partners, all of the partners usually control the partnership equally, so this is not a complicated matter. However, you may choose to have certain partners act as managing partners, in which case this step becomes more important.
6. Draft a partnership agreement. While it is not necessary to have such a written agreement, it is highly advisable.
7. Decide whether to draft and file a statement of partnership (for a general partnership) or a certificate of limited partnership (for a limited partnership).
8. Obtain a federal tax ID number (known as the employer identification number) for your partnership. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have a federal tax ID number to conduct many transactions on behalf of the partnership (opening a bank account, for example).
9. Check the state and local laws to determine if there are any other registrations you must make, or any licenses or permits you must obtain to operate your business.
How do I set up a limited liability company?
How do I set up a limited liability company?
Ever state has its own laws regarding LLCs, with its own requirements about what steps must be precisely followed for an LLC to be setup. For example, many states will let you set up an LLC that only has a single owner/member, but some states will not allow this. That said, when you are setting up an LLC (and as the person setting up an LLC, you are known as the organizer) you would generally follow these steps:
1. Give some thought to how the company is initially going to be financed, because that may affect some of the later things you will do (although you would not really be locked into anything at this point and would obviously have some flexibility down the road, should your circumstances change).
2. Determine whether you will be hiring an attorney to help out in the process.
3. Figure out what state you are going to organize the business in.
4. Pick a company name.
5. Determine who is going to be the company’s registered agent.
6. Decide how the LLC ownership is going to be structured (as with corporations, owners hold some ownership shares, called units, which are issued by the LLC to the owners).
7. Draft and file the articles of organization.
8. Determine how the company will be controlled and managed (i.e., whether it will be member-managed or manager-managed).
9. If the LLC is going to be member-managed, you must determine who the managing members will be, and appoint them in the operating agreement.
10. Draft and approve the LLC operating agreement.
11. Obtain a federal tax ID number (known as the employer identification number) for your company. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have this federal tax ID number to conduct many transactions on behalf of the LLC (opening a bank account, for example).
12. If you have elected to have your LLC use the double taxation method of corporation, you must file a form with the IRS notifying them of this.
13. Address any other legal requirements that might apply - for example, some states require companies to make additionally filings, or to obtain licenses, depending on what type of business they will be engaging in.
Ever state has its own laws regarding LLCs, with its own requirements about what steps must be precisely followed for an LLC to be setup. For example, many states will let you set up an LLC that only has a single owner/member, but some states will not allow this. That said, when you are setting up an LLC (and as the person setting up an LLC, you are known as the organizer) you would generally follow these steps:
1. Give some thought to how the company is initially going to be financed, because that may affect some of the later things you will do (although you would not really be locked into anything at this point and would obviously have some flexibility down the road, should your circumstances change).
2. Determine whether you will be hiring an attorney to help out in the process.
3. Figure out what state you are going to organize the business in.
4. Pick a company name.
5. Determine who is going to be the company’s registered agent.
6. Decide how the LLC ownership is going to be structured (as with corporations, owners hold some ownership shares, called units, which are issued by the LLC to the owners).
7. Draft and file the articles of organization.
8. Determine how the company will be controlled and managed (i.e., whether it will be member-managed or manager-managed).
9. If the LLC is going to be member-managed, you must determine who the managing members will be, and appoint them in the operating agreement.
10. Draft and approve the LLC operating agreement.
11. Obtain a federal tax ID number (known as the employer identification number) for your company. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have this federal tax ID number to conduct many transactions on behalf of the LLC (opening a bank account, for example).
12. If you have elected to have your LLC use the double taxation method of corporation, you must file a form with the IRS notifying them of this.
13. Address any other legal requirements that might apply - for example, some states require companies to make additionally filings, or to obtain licenses, depending on what type of business they will be engaging in.
How do I set up a corporation?
How do I set up a corporation?
Every state has its own corporate laws, with its own requirements about what steps must be precisely followed for a corporation to be setup. For example, many states will let you set up a corporation that only has a single owner or that has a board of directors made up of only a single director, but some states will not allow this.
That said, when you are setting up a corporation (and as the person setting up a corporation, you are known as the incorporator) you would generally follow these steps:
1. Give some thought to how the corporation is initially going to be financed, because that may affect some of the later things you will do (although you would not really be locked into anything at this point and would obviously have some flexibility down the road, should your circumstances change).
2. Determine whether you will be hiring an attorney to help out in the incorporation process.
3. Figure out what state you are going to incorporate the business in.
4. Pick a corporate name.
5. Determine what type of a corporation you are setting up - a nonprofit corporation or a for-profit corporation. And if it is going to be a for-profit, you should further decide whether it will be a C corporation, an S corporation or a professional corporation. You should also decide if the business will be a close corporation.
6. Determine who is going to be the corporation’s registered agent.
7. Decide how the corporate stock is going to be structured, how much stock is initially going to be issued and how it is actually going to be issued.
8. Draft and file the articles of incorporation.
9. Determine the director structure - how many directors there are going to be and who the initial directors are going to be. The incorporator must then formally elect the directors.
10. Draft and approve the corporate bylaws.
11. Hold the initial directors meeting, addressing issues such as the designation and confirmation of the registered agent, approval of the stock certificates, designation of the corporation’s principal office, appointment of corporate officers, issuance of stock, etc.
12. Obtain a federal tax ID number (known as the employer identification number) for your corporation. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have this federal tax ID number to conduct many transactions on behalf of the corporation (opening a bank account, for example).
13. Issue stock certificates to the initial shareholders, making sure you are in compliance with state and federal securities laws.
14. Address any other legal requirements that might apply - for example, some states require corporations to make a filing with regard to their initial stock offering, or you may need certain business licenses, etc.
Every state has its own corporate laws, with its own requirements about what steps must be precisely followed for a corporation to be setup. For example, many states will let you set up a corporation that only has a single owner or that has a board of directors made up of only a single director, but some states will not allow this.
That said, when you are setting up a corporation (and as the person setting up a corporation, you are known as the incorporator) you would generally follow these steps:
1. Give some thought to how the corporation is initially going to be financed, because that may affect some of the later things you will do (although you would not really be locked into anything at this point and would obviously have some flexibility down the road, should your circumstances change).
2. Determine whether you will be hiring an attorney to help out in the incorporation process.
3. Figure out what state you are going to incorporate the business in.
4. Pick a corporate name.
5. Determine what type of a corporation you are setting up - a nonprofit corporation or a for-profit corporation. And if it is going to be a for-profit, you should further decide whether it will be a C corporation, an S corporation or a professional corporation. You should also decide if the business will be a close corporation.
6. Determine who is going to be the corporation’s registered agent.
7. Decide how the corporate stock is going to be structured, how much stock is initially going to be issued and how it is actually going to be issued.
8. Draft and file the articles of incorporation.
9. Determine the director structure - how many directors there are going to be and who the initial directors are going to be. The incorporator must then formally elect the directors.
10. Draft and approve the corporate bylaws.
11. Hold the initial directors meeting, addressing issues such as the designation and confirmation of the registered agent, approval of the stock certificates, designation of the corporation’s principal office, appointment of corporate officers, issuance of stock, etc.
12. Obtain a federal tax ID number (known as the employer identification number) for your corporation. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have this federal tax ID number to conduct many transactions on behalf of the corporation (opening a bank account, for example).
13. Issue stock certificates to the initial shareholders, making sure you are in compliance with state and federal securities laws.
14. Address any other legal requirements that might apply - for example, some states require corporations to make a filing with regard to their initial stock offering, or you may need certain business licenses, etc.
How do I set up a business name for my sole proprietorship?
How do I set up a business name for my sole proprietorship?
A sole proprietorship, unlike other business forms, is not a separate legal entity and is indivisible from the business owner. However, it can still be operated under a separate business name and most people do, in fact, use a separate name for their sole proprietorship. This is generally referred to as a fictitious business name and it is simply whatever trade name you have decided to use (the reason it is called “fictitious” is because the company’s true legal name is your name, since you and the sole proprietorship are legally indistinguishable). Most states require you to file and register this name, so once you have chosen your business name, you should check to see whether you have to make any fictitious business name filings.
One you have selected and registered name, you may begin using it for your business purposes. This is known as “doing business as,” and many companies will also use that term or “DBA” or “d.b.a.” in certain documents or advertising. For example, in executing a legal document, you may sign the document as “Bob Jones, d.b.a. Jones’ Hardware.”
A sole proprietorship, unlike other business forms, is not a separate legal entity and is indivisible from the business owner. However, it can still be operated under a separate business name and most people do, in fact, use a separate name for their sole proprietorship. This is generally referred to as a fictitious business name and it is simply whatever trade name you have decided to use (the reason it is called “fictitious” is because the company’s true legal name is your name, since you and the sole proprietorship are legally indistinguishable). Most states require you to file and register this name, so once you have chosen your business name, you should check to see whether you have to make any fictitious business name filings.
One you have selected and registered name, you may begin using it for your business purposes. This is known as “doing business as,” and many companies will also use that term or “DBA” or “d.b.a.” in certain documents or advertising. For example, in executing a legal document, you may sign the document as “Bob Jones, d.b.a. Jones’ Hardware.”
How do I end a partnership?
How do I end a partnership?
When a partnership ends, this is known as dissolution of the partnership. It is basically where the business closes its doors, pays off its creditors, sells off it remaining assets and resolves any other remaining issues. Dissolution can be voluntary or involuntary. Voluntary dissolution would be where the partners decide, on their own, to dissolve the partnership. This is usually done by a simple partnership vote, and once they have agreed on the matter, they simply work on winding down the business. Involuntary dissolution would be where a court orders the partnership to dissolve. This typically occurs in one of two situations. The first situation is where the partnership is insolvent or in poor financial shape, and one or more of its creditors go to court over the issue. The court may dissolve the partnership, ordering it to sell off all of its assets so that the creditors can be repaid. The other typical situation of involuntary dissolution is when one or more partners want to end the partnership, but are being blocked by the other partners. They can file a lawsuit over the matter, and if the court agrees that the partnership should be ended, it will order an involuntary dissolution.
When a partnership ends, this is known as dissolution of the partnership. It is basically where the business closes its doors, pays off its creditors, sells off it remaining assets and resolves any other remaining issues. Dissolution can be voluntary or involuntary. Voluntary dissolution would be where the partners decide, on their own, to dissolve the partnership. This is usually done by a simple partnership vote, and once they have agreed on the matter, they simply work on winding down the business. Involuntary dissolution would be where a court orders the partnership to dissolve. This typically occurs in one of two situations. The first situation is where the partnership is insolvent or in poor financial shape, and one or more of its creditors go to court over the issue. The court may dissolve the partnership, ordering it to sell off all of its assets so that the creditors can be repaid. The other typical situation of involuntary dissolution is when one or more partners want to end the partnership, but are being blocked by the other partners. They can file a lawsuit over the matter, and if the court agrees that the partnership should be ended, it will order an involuntary dissolution.
How do I end a corporation?
How do I end a corporation?
While a sole proprietorship and partnership generally only exist for as long as its owners, corporations hold a more perpetual existence and can outlive their individual shareholders. Thus, corporations are generally ended by dissolution, where the company closes its doors, pays off its creditors, sells off its remaining assets and resolves any other remaining issues. Dissolution can be voluntary or involuntary.
Voluntary dissolution would be where the directors decide, on their own, to dissolve the corporation.
Involuntary dissolution is where the corporation’s existence is terminated either administratively or judicially. An administrative dissolution occurs where the secretary of state (or some other state entity in charge of overseeing corporations) orders a corporation to be dissolved because the company has failed to comply with the state’s mandatory filing and reporting requirements, or is somehow otherwise delinquent under state law requirements (this most commonly occurs where a corporation is behind in tax payments). A judicial dissolution occurs where a court orders the termination of a corporation at the request of the state attorney general, shareholders, or creditors.
While a sole proprietorship and partnership generally only exist for as long as its owners, corporations hold a more perpetual existence and can outlive their individual shareholders. Thus, corporations are generally ended by dissolution, where the company closes its doors, pays off its creditors, sells off its remaining assets and resolves any other remaining issues. Dissolution can be voluntary or involuntary.
Voluntary dissolution would be where the directors decide, on their own, to dissolve the corporation.
Involuntary dissolution is where the corporation’s existence is terminated either administratively or judicially. An administrative dissolution occurs where the secretary of state (or some other state entity in charge of overseeing corporations) orders a corporation to be dissolved because the company has failed to comply with the state’s mandatory filing and reporting requirements, or is somehow otherwise delinquent under state law requirements (this most commonly occurs where a corporation is behind in tax payments). A judicial dissolution occurs where a court orders the termination of a corporation at the request of the state attorney general, shareholders, or creditors.
How can I protect myself from liability?
How can I protect myself from liability?
Liability is a major concern for many business owners, especially for larger business which have a lot of risk. The cause for concern is that without some type of protection, you can be personally liable for your business’ debts and losses as a business owner. To help protect yourself from such liability, you can choose to organize your business as a corporation or a limited liability company, which offer some protection to the business owners (limited partnerships are also an option, although they will not help you if you are going to be actively involved in running the business).
You have to be careful however, even with a corporation or LLC, as the liability protection is not absolute. Business owners are still liable for things they do which are separate and apart from the business. In addition, the protection of limited liability can also be lost as a result of the legal theories known as alter ego liability and piercing the corporate veil. To help avoid having these legal theories applied, you should make sure that you set your corporation or LLC up properly, in accordance with the relevant state laws, and work to keep your company in good standing.
Liability is a major concern for many business owners, especially for larger business which have a lot of risk. The cause for concern is that without some type of protection, you can be personally liable for your business’ debts and losses as a business owner. To help protect yourself from such liability, you can choose to organize your business as a corporation or a limited liability company, which offer some protection to the business owners (limited partnerships are also an option, although they will not help you if you are going to be actively involved in running the business).
You have to be careful however, even with a corporation or LLC, as the liability protection is not absolute. Business owners are still liable for things they do which are separate and apart from the business. In addition, the protection of limited liability can also be lost as a result of the legal theories known as alter ego liability and piercing the corporate veil. To help avoid having these legal theories applied, you should make sure that you set your corporation or LLC up properly, in accordance with the relevant state laws, and work to keep your company in good standing.
How can I finance my new business?
How can I finance my new business?
Obviously, one of the biggest issues in starting a new business is putting together the money to get things off the ground and running it until the company becomes profitable on its own. For a small business, you may be able to fund it on yourself, using your savings, taking out an equity mortgage on your home or even using your credit cards (while this is fine for short-term financing, you should not use your credit cards over the long term because of their high interest rates). Outside of such self-financing, the two major ways you can finance a new business are by taking out loans, or obtaining equity investors.
Most business typically take out loans from a bank or other financial credit institute, although you can certainly arrange for a private loan from friends or family. Similarly, with equity investors, you can arrange for friends or family to become investors in your business venture or you can find unaffiliated investors to provide you with startup money and/or services. A major advantage to taking the loan route is that, over the long term, if your business does well, once the loans are repaid you get to keep all of the business profits and do not have to share them. With investors, you would always have to share your business profits, as those investors have essentially purchased a portion of the business and become co-owners.
Before you start down the path to getting financing for your new business, you should also consider putting together a business plan, which will help in getting a loan approved or convincing investors to join you.
Obviously, one of the biggest issues in starting a new business is putting together the money to get things off the ground and running it until the company becomes profitable on its own. For a small business, you may be able to fund it on yourself, using your savings, taking out an equity mortgage on your home or even using your credit cards (while this is fine for short-term financing, you should not use your credit cards over the long term because of their high interest rates). Outside of such self-financing, the two major ways you can finance a new business are by taking out loans, or obtaining equity investors.
Most business typically take out loans from a bank or other financial credit institute, although you can certainly arrange for a private loan from friends or family. Similarly, with equity investors, you can arrange for friends or family to become investors in your business venture or you can find unaffiliated investors to provide you with startup money and/or services. A major advantage to taking the loan route is that, over the long term, if your business does well, once the loans are repaid you get to keep all of the business profits and do not have to share them. With investors, you would always have to share your business profits, as those investors have essentially purchased a portion of the business and become co-owners.
Before you start down the path to getting financing for your new business, you should also consider putting together a business plan, which will help in getting a loan approved or convincing investors to join you.
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