Legal Review, Choice of Entity
A presentation I recently attended, hosted by Catherine Foos,Esq., as part of an Eforall program I am participating in, gave a great overview of the various business Entity options. Each option needs its own EIN number which is obtained through the federal government.
A Sole Proprietorship seems to be easy and affordable to establish but also caries with it the most personal risk an Self Employment taxes must be payed.
A partnership is when 2 or more people enter into business and should establish a Partnership Agreement with roles clearly defined to avoid conflicts latter. This Entity also caries unlimited personal liability, if it is not established as a Limited Partnership. Cost to file varies from $200-$500 and then annually $500 with self employment taxes needing to be paid.
Limited Liability Company LLC costs $500 to establish and then $500 a year to renew and offers protection to owners as they can not be held personally liable. However self employment taxes must be paid.
There are a few more options as you move up the cost scale with higher degrees of protection and regulations as a corporation, but providing protection from liability to owners.
C-corp can be established with 1 or more people and cost to file is $275 with $125 renewal fee. Articles of Organization must be filed and maintained.
S-corp is established and all stock holders must be U.S. citizens with a 100 member cap and an IRS form 2553 must be filed.
B-Corp is established with one or more members.
Non-profit is established with one or more members with a certificate of organization filed with the secretary of state. It costs $500 to establish and then $500 renewal, with a report. This structure requires self employment tax payments.
As you can see there are varying degrees of options and you must decide which option is best for you and your business as well as how much risk you are willing to take. So take some time and ask questions and do your research, it will save you headaches in the future.
If you need to hire an attorney make sure you feel comfortable working with that person and that there is timely communication.