Organizing Your Business
Now that you've
written your bookstore business plan,
chosen your name, and
assembled your power team, it's time to pick the legal structure of your business. Will you be a sole proprietorship,
a partnership, a limited liability company (LLC), a corporation or an S corporation?
Factors to consider when choosing your
business structure include: number of owners, organizational costs, taxation, and liability. Choosing your business structure has
tax and legal implications (which are subject to change), so consult your attorney and accountant before finalizing your decision.
Factors to consider when choosing your business structure include: number of owners, organizational costs, taxation, and liability. Choosing your business structure has tax and legal implications (which are subject to change), so consult your attorney and accountant before finalizing your decision.
A sole proprietorship is a business structure that allows only a single owner. The business and the owner are legally considered the same entity, so unless your business name is exactly the same as your legal name, you will need to file a DBA (doing business as) registration with your state and/or county. When reporting yearly profit and loss from your business, you simply report it on Schedule C of your IRS Form 1040. Throughout the year you will estimate your tax liability and file a 1040-ES form with accompanying payment each quarter. The disadvantages of a sole proprietorship include the following:
A partnership is a business structure that requires two or more owners. Partnerships have the organizational cost of having a legal partnership agreement drawn up that governs how decisions will be made, disputes resolved, new partners admitted, existing partners bought out, etc. At tax time, the partnership will have to file a Form 1065: Partnership Return of Income and Schedule K-1 which shows each partner's share of the profit and losses. Each partner in turn will report his or her share of profits on Schedule E of his or her personal IRS Form 1040. Like sole proprietors, partners are each responsible for making a quarterly estimated tax payment. The partnership can usually raise additional financing by adding one or more partners. Disadvantages of a partnership include the following:
A corporation is considered under law to be its own separate entity apart from that of its owners. It can be sued, taxed, and can enter into contractual agreements. The owners of a corporation are known as shareholders. The shareholders elect a board of directors to oversee the business. Shareholders typically have limited liability for the corporation's debts. Corporations can raise additional funds through the sale of stock; they can also deduct the full cost of benefits provided to officers and employees. If the business will be retaining profits from year to year, then the lower initial corporate tax rate may be beneficial. Shareholders who work for the corporation are paid salaries and have taxes withheld just like regular employees of any company; they are not subject to self-employment tax. Disadvantages of a corporation include the following:
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Contact the editor, Craig Stark
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