How to choose your business status for legal purposes

How to Choose Your Business Status for Legal Purposes? One of the primary concerns to someone who begins a new business is the liability to their own assets, like their home, bank accounts, credit ratings, etc.

There are several types of business entities:

Sole Proprietorship or General Partnership, Corporation or forming a Limited Liability Company (LLC), Non-Profit Corporation, and included in the private ownership firms, is the legal designation of DBA (Doing Business As).

The main purpose of a LLC or Corporation is to protect personal wealth, the owner's home and credit rating is not jeopardized.

A corporation is like a separate legal entity, the corporate officers are not risking their own belongings, or savings or homes, etc.Also corporations are taxed at a lower rate plus many business expenses like training seminars, trips to buy materials or estimate jobs can all be tax deductions as business expenses.

Also a corporation has a higher credibility rating with lenders, and customers and those who would be your sources of supplies and materials. Customers know you are an organized company, which increases their faith in your company.

Also corporations can raise money by selling shares of stock. All of these provisions can be built into the articles of incorporation, which the owner(s) prepare at the beginning of the establishment of their INC or LTD or LLC.A board of directors is established from people chosen by those people forming the corporation, and a name is chosen for the corporation.

A corporation need not end the life of its business if the owner becomes sick, disabled or dies. The board of directors can elect a new director etc. Many corporations are public companies with many stock or shareholders who could vote for new leadership.

On the Internet, there are many sites with information about corporation, and the SBA (Small Business Administration) offers many tips and also some good guidelines to assist corporation to obtain some loans.

The DBA (or doing business as) name is sometimes a person's name but more often is a more descriptive name helping customers know what that company is selling or building or what service it is offering etc.

The easiest way to begin a business is a sole proprietorship, which also includes a DBA as recommendation. That step allows the owner to have business checking accounts, telephone directory ads, and storefront signs in the company name with less hassle. Most states require a business to register for a tax ID number, and set up state and federal tax accounts. Bank accounts are more conveniently set up if these `legal organizing' steps are taken.

A sole proprietor can be held legally liable for any business debt. This means that if the business doesn't pay a supplier, gets behind in payments of a debt, or loses a lawsuit, the creditor can legally put a lien against the owner's house or other possessions.

If someone sets up a sole proprietorship, then the business is not legally separate from the person who owns it. With a sole proprietorship, the business and its owner are one and the same means that a sole proprietor simply reports all business income or losses on his or her individual income tax return.

As a sole proprietor, full responsibility for withholding and paying all income taxes is your responsibility, and something an employer would normally do for you. This means you'll have to pay a "self-employment" tax, which consists of contributions to Social Security and Medicare, and pay estimated taxes throughout the year.

Also you must complete the general registration requirements that apply to all new businesses.

With a non-profit or charitable corporation allow individuals to donate money to you tax-free, while shielding you and your personal assets from liability.

Incorporating is one of the best ways a business owner can protect his or her personal assets. Most people choose to incorporate solely for this reason, but there are other advantages. You can more easily raise capital.

As you look at the different options that are available for the legal statuses for a business for legal purposes, you will need to find out where your business fits into these types of business, and then decide what will give you the best benefits for growth.