If you’ve made the decision to try your hand at your own business, you have a few things to consider.
First things first: What kind of business do you want?
Sole Proprietorship
This is a business owned by one person. She may operate alone or may employ others. Of course, payroll taxes come into play once any employees are hired—with this type of company, the owner has personal liability for the debts incurred by the business.
Partnership
This is a form of business that two or more people operate, and it is usually oriented toward making profit. In most forms of partnerships, each partner has personal liability for the debts incurred by the business. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
Corporation
A corporation is a limited-liability entity, and can be organized for-profit or not-for-profit.
A corporation is owned by shareholders and is overseen by a board of directors, which hires the business’ managerial staff. In addition to privately-owned corporate models, there are state-owned corporate models. A corporation may also be “owned” by one person, such as my consultancy, MightyScribe, Inc. I have stock certificates, a board of directors, and I can bring on a board and employees at any time. I even have a corporate stamp!
Cooperative
Often referred to as a “co-op,” a cooperative is a limited liability entity that can organize for-profit or not-for-profit. A cooperative firm has members, as opposed to shareholders, and they share in decision-making authority. Cooperatives are usually classified as either consumer cooperatives or worker cooperatives.
To help figure this out, visit the description on the IRS website. It has some excellent guidance to get you going.
Nonetheless, we strongly suggest that you get some professional help, too, from an accountant and a lawyer. I found one person who serves both functions, so my corporation was set up for roughly $500, and the taxes are done by the same person.
There are a lot of tax forms to deal with when you’re setting up your own company, and it’s much saner to have all of that taken care of by a pro. Besides, you’ll be too busy doing WORK and getting paid!
