HOW DO I START MY OWN BUSINESS? (Part 1 of 3)
One of the American dreams is to be your own boss; to run your own business. The most common forms of business are sole proprietorship, partnership, limited liability company (LLC) and corporation (Corp). These are the “entities” through which you can operate a business and there are some variations of these as well. (This topic is too large to address in one blog so I will do so in a series of blogs.) Some entities will also have various IRS tax elections that control how you file your taxes and how the IRS treats your income. This first blog will address sole proprietorships and partnerships. An important part of starting a business is also obtaining tax advice, which you should obtain from an accountant or other tax professional.
A sole proprietorship is the simplest form in which you simply start doing business either in your own name or your own name “doing (does) business as” (d/b/a) some formal business name. For example, I, prior to joining this law firm, did business as the “Law Office of Louis A. Crisci, Jr., Esq.” I used my name as my business name. However, I could also call my office by another name, such as “Crisci Law Offices” which would still be me operating the office as an individual, but, because it does not have my full name, I would also have to file a trade name certificate with each town I did business in that tells the world “I, Louis A. Crisci, Jr., Esq. d/b/a Crisci Law Offices”. A sole proprietorship gives you no protection for your personal assets should you be sued for any reason. Your only line of protection is insurance to the extent you purchase sufficient coverage. For income tax purposes, the business income is your income and you just file your personal tax return.
A partnership, by definition requires more than one person or entity. A partnership can be a General Partnership or a Limited Partnership. A General Partnership is one where all its participants are actively involved in the operation of the business and therefore share in the liabilities of the business and potentially personally as well. A Limited Partnership usually has general partners as mentioned above but also has some limited partners. A limited partner is not usually involved in the everyday operation of the business (to do so may expose him/her to liability similar to a general partner), but may have invested some money into the business and owns a minority interest. A limited partner’s liability for acts of the partnership is limited to his/her investment in the partnership. His/her personal assets are not exposed. For income tax purposes, usually the partnership will file a tax return, but the tax liability is passed through to the individual members to claim on their personal tax returns and they are only taxed at the individual level.
“When results matter, experience counts”