Must know for all entrepreneurs before registering your business entities in the U.S
Getting your business registered is one of the important thing every successful or aspiring successful entrepreneur must do. There are a couple of different things called entities in registering a business.
Before I go any further, I want to give you a disclaimer!!!, I’m not a legal CPA or tax person, so all this advice I’m giving you is clearly through my past experience, and you should consult with your lawyer or your tax person to get more in-depth information.
There are six business entities you can register your business:
A sole proprietorship
General partnership
Limited partnership
Limited Liability Company (LLC)
S corporation
C corporation
Each of those six entities, they all work and operate differently; they all have disadvantages and advantages. I will only go over three of them pretty much. The top three or four of them will give you a retro perspective on how they can affect you and your registered business. The bigger your business, the more you can dive into which one to register your business.
I will break down what I’ve experienced and the most popular ones that I recommend for businesses is a sole proprietorship, LLC, S Corp, and C corp.
The sole proprietorship entity:
Sole proprietorship is just as simple as you being your entity as a business and saying, “Hi. I’m John or Sally Joe doing business as Sally’s Barber Shop or Sally’s Salon:” without any doubt, you’re considered a business. It has both its advantages and disadvantages. It’s easy to do, i.e., anybody can do it. I You can go to the secretary of the state and file the paperwork, fill out the paperwork, and you are good to go.
Make sure you get a legal name. They give you an EIN, An EIN is an employee identification number. It’s a nine-digit number that is your new social security card for business. You can use just your social security card when you’re doing business as a sole proprietor. It comes like your new social security card number for business, i.e., your unique ID for business. You’ll get that, and now, that’s what you use. It’s EIN or tax ID numbers that make you stand out as a business. All you have to do is know your secretary of state office and fill out that paperwork.
One of the disadvantages of being a sole proprietor is that you instantly become a business, no matter how big or small, is liable by that person; there’s no protection for you or your business assets , it’s is not separate from the person. If they wanted to sue you, they could sue you and your assets. That’s one of the main disadvantages of being a sole proprietor. There are also other tax advantages where you have to pay your self-employment taxes because you’re considered an independent contractor or self-employed. So, you have to file differently, filing a personal tax return and not a business tax return.
Considering you’re not paying into your social security or medicare, you have to pay that yourself. From my experience, the IRS looks at sole proprietorship as an entry-level into business. However, suppose you wanted to keep it separate as a sole proprietor. In that case, you could also use an EIN, but when you’re doing business as to whether an LLC or corporation partnership, an EIN will be the new social security number for your business.
That’s how the IRS identify your business, by that number the IRS would identify you and your business as a taxpayers are. So that’s something that you want to keep close to you when you are a sole proprietor, you would typically use your social security number as your identification number. So it’s technically only for business entities, such as LLCs and corporations, and partnerships.
S-Corp:
S corps is like its entity, but you can have an LLC and prefer an S corporation. It allows you to have more shareholders and have your employees and things like that. One of the great benefits of being an S corp is that you can write yourself off as an employee and save it as an expense for you as an employee, i.e you can have John’s Barbershop and John the barber is working for John’s Barbershop.
You can pay yourself a salary or pay yourself a wage to have two different tax returns, so you have a business tax return and a tax return for you as a person. There are many different tax breaks that you can look into by having and selecting to be an S corporation.
Some of the disadvantages are that there are strict qualifications for S corp. They’re moving the needle on you, paying a closer little eye on you just because now that you’re an S corporation, the IRS looks at you as, “Hey, this this guy or lady knows what he or she is doing, so we just want to make sure that everything is going right.” You are less likely to get audited when you have an S corp.
Hypothetically speaking, you know, you wouldn’t do that if you didn’t know a bit of tax law. You are giving good fruit of what you’re doing when you are an LLC or an S corporation or C or whatever corporation. The IRS pays a little more attention to a person that’s an S compared to a sole proprietor that is considered like the entry-level into business.
Once you become an LLC as an S corps, they look at you with such a microscope. It depends on how you ensure you’re keeping up with your tax laws and staying current with all of these laws. Also, make sure that your CPA is up to that. Things are constantly changing; make sure that you’re just available and aware of what’s happening.
It’s important you look into being an S corp because it can be very beneficial, if you know your business entity and what you’re looking to do with business. Make sure you consult a financial advisor or a tax lawyer.
There can be shareholders with S corp can be up to 100 shareholders, and your shareholders can have shares in your business.
Look into hiring somebody as a professional at getting that information especially depending on where you’re at your business and location.
Always ensure that any corporations you decide to stick with have to be registered to do business within or outside their home state.
We would be learning more about the C corps and LLC business entities in our next post, I wouldn’t want you to miss out on any information regarding your business kindly hit the follow button to stay connected
You can listen to this on the go or connect with me on Instagram, Facebook, Linkedin, You can also check out our amazing Youtube resources, and our Website
