Starting a Business: Sole Proprietor or Corporation?
by Kris Bickell
Published on this site: April 14th, 2006 - See
more articles from this month
When starting a business, it is important to consider the
potential tax and legal issues. Most people choose a "sole
proprietor" as their business type when starting out.
Starting your business as a sole proprietor does not require
any special paperwork from the IRS.
Which is exactly why most people start out this way. Being
a sole proprietor means that you and the business are one
and the same.
According to the IRS :
"A sole proprietorship is an unincorporated business
that is owned by one individual. It is the simplest form
of business organization to start and maintain. The business
has no existence apart from you, the owner. Its liabilities
are your personal liabilities. You undertake the risks of the business
for all assets owned, whether used in the business or personally
owned. You include the income and expenses of the business
on your own tax return."
However, even though a sole proprietorship is the simplest
way to set up your business, you still need to follow your
local business regulations to make your business legitimate.
And you are personally responsible for paying both income
taxes and business debts.
So, is being a sole proprietor the right business structure
for you?
For most home business, in the beginning, yes.
If you choose to start your business as a sole proprietor,
you do have the option of incorporating as your business grows.
What is the difference between a sole proprietor and corporation?
Unlike a sole proprietorship, a corporation is a legal entity
in which the individual and business are separate. The great
thing about incorporating is taht the corporation protects
you from personal liability for business debts. For example,
if your business gets sued, your personal assets are safe, for
the most part.
And, you may be able to save a significant amount of money
in taxes by incorporating.
If you decide to incorporate, there are several options:
- S Corporation
- C Corporation .
- LLC (Limited Liability Corporation)
Before incorporating, it is a good idea to check with the
IRS and your tax professional first.
Setting up a corporation is more complicated - and may not
be right for your business!
Kris Bickell is the owner of http://www.Debt-Tips.com,
a helpful site for consumers needing financial help. To learn
how you can "bank on yourself", save for
retirement, and get ahead in life, sign up for the free "Bank
On Yourself" report
at: http://www.Debt-Tips.com/build-wealth.html http://www.Debt-Tips.com
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