Consult a Business Law Attorney Before Choosing an Entity Type for Your Business
You should incorporate yourself. Small business owners face an uphill battle because they have to pay so many taxes. Big corporations get away with paying far fewer taxes than the law says they should. LLC is the best kind of business entity. These frequently repeated statements, taken out of context, are not helpful to someone starting a business, because they do not take into account the uniqueness of each business and its owner or owners. When you choose an entity designation for your business or organization, you must consider many factors. Consulting an Alabama business law attorney is an important early step toward making the decision that is right for you and for your business.
What Is a Business Entity Designation?
Everyone and everything that earns income in the United States, and therefore must file a tax return must have a tax ID number. Individual people have social security numbers, but everything else that pays taxes has an Employer Identification Number (EIN). The term “employer” is somewhat misleading, because the “everything else” includes not only business, but also charities, churches, and the estates of deceased people, among other entities. Getting an EIN for your business is the first step to doing business in an official capacity. Whereas all estates get the same category of EIN (“estate of deceased individual”), and charities get the entity designation “non-profit organization” or “church controlled organization” depending on whether they have a religious affiliation, the entity type for a business is partially a matter of subjective choice.
Once you choose an EIN, it is very difficult to change it. Meeting with a lawyer before you apply for an EIN is much less costly than trying to change your entity type after the IRS has already recognized your business.
Overview of EIN Business Structures
These are the entity types for businesses.
- Sole Proprietorship – A one-person business. It counts as a separate entity by the IRS for tax purposes, but for legal purposes, you and your sole proprietorship are the same legal “person.”
- Partnership – The business has two or more owners. Each owner is liable for financial losses incurred by the business and for legal judgments against it.
- Limited Partnership – Same as a partnership, except that the partners have less liability.
- Limited Liability Company (LLC) – Contains elements of a partnership (fewer taxes, less liability) and of a corporation (ability to offer tax-free benefits, like health insurance, to its employees).
- Corporation – A large business with complex privileges and obligations. It pays taxes separately from its owners, and it has stockholders that can benefit from its financial gains. If you own a corporation, you pay your own taxes, plus its taxes.
- Small Business Corporation (S-Corporation)- Like a corporation, except smaller, and without the double taxation.
Let Us Help You Today
Choosing a business structure for an enterprise you plan to start is a major decision, and even experienced entrepreneurs could use professional advice from a lawyer. Contact the Alabama business litigation & corporate law attorneys at Cloud Willis & Ellis for a consultation.