Business Basics Simplified
Article by: Nikisha Thompson
Confused by the all the technical stuff? Don't be. Business startup is all about making choices and following steps. Assuming you already have a business idea, your next step will be to determine the type of business you will start (If you do not have a business idea, please visit the Entrepreneur's Corner).Your basic choices are: A Sole Proprietorship, Limited Liability Corporation, or Regular S or C Corporation.
The differences between all of the business entities lies in two factors: risk and tax. If you want to conduct business in your own name and do not want to go through the hassles of paperwork, you can simply obtain a business license from your county and conduct business. If you would like to conduct business as an individual but under a business name, you will have to file a fictitous names or DBA (Doing Business As) document to say you are operating under that name. You will be taxed as an individual and carry all liabilities or risks of the business. This means that if the business gets sued, you get sued.
Filing as an LLC or Limited Liability Corporation means that you will still be taxed as an individual but you will not carry the risks of the organization. Your assets will be protected and you are not personally responsible fo the company's debts. LLC's are not subject to the rules that traditional corporations must follow, and profits can be split as the owner sees fit.
Filing as an S Corporation will help the company save on certain taxes. These corporations, however, must follow specific guidleines. For example, the profits in a corporation must be distributed according to how much each person invested in the company. There is also a lot of extra paperwork that must be filed when establishing this type of company.
Your best bet would be to operate as a sole proprietor if your business is small with little to no risk, or an LLC if your business has little to medium risk. You always have the option of "upgrading" to a corporation once your business begins to grow and you can afford a lawyer and accountant. Each state has a filing office, and most have online services that will walk you through each step of creating your LLC.
Once you have established your business type, don't forget your local business license that will allow you to conduct business in your area! Your local city hall or courthouse should be able to point you in the right direction.