There are four basic corporate entities options for small business owners, Sole Proprietor, Partnership, S-Corporation or an LLC. Yes, there are other flavors, but they are variations of these four basic entity types such as a C-Corporation or a LLP, etc.
A Sole Proprietor is someone claiming that they are in business. That is all that needs to be done from a legal and tax standpoint. Granted more should be done, but this is all that is needed to start. You then sell your services and keep your records for tax purposes. All transactions are recorded under your social security number if anyone asks for a W-9. Selling products requires registering with the state. You have unlimited liability for mistakes you make.
A Partnership is two or more people getting together and stating that they are in business together. Here you need to do a few more things. You need an EIN for the partnership, the bank will probably want to see a partnership agreement. But each partner is legally responsible for every stupid decision that the other partner(s) make. There is unlimited liability to all parties for all mistakes made.
An S-Corporation is a separate legal entity in and upon themselves. The state has to approve, it needs to be registered with the IRS after and EIN for approval of its S-Corp status. Liability is limited to assets placed in the business, but there are legal requirements that have to be addressed at least annually.
An LLC is a limited liability corporation; a sole LLC is a disregarded entity for the IRS so try to get another to participate or chose a different option. After Organizing, an EIN is necessary, as well as an “operating agreement”. This is also a separate legal entity if more than one owner and has limited liability.
These entities all have their pluses and minuses, a well informed decision should be made before jumping into any entity. There are real costs with some of the entities and risks that may cost, if not addressed properly. Also there are tax implications for all entities as well. For help in deciding what entity may be right for your business let us assist.