Different Types of Corporations

In forming your business you need to know what type of corporation you want to set up Sole Proprietorship, Partnership, C Corporation, S Corporation, or LLC. Each one has different responsibilities, and different ways of setup.

If you already do business by yourself, then you are a sole proprietor. You are responsible for everything legally. You personally take on all the debts and expenses of the company, and they can come after your personal expenses. Your business income is reported on your individual tax return. You not only pay income tax, but you also may need to pay additional taxes. If you decided to do a sole proprietor you may want to register your company name with your local municipality. This will tell you whether that name is available for you to use. You also may need paperwork with that business name to open a business bank account.

If you and a partner decide to team up to open a business, then you have a formed a partnership. Partners are not employees, and legally each partner is responsible for each of the debts that the company has. Make sure when you form your partnership that you have an agreement in writing about how to handle certain situations.

You can choose to form a limited liability company. The additional protection this offers is to protect your personal assets from business creditors. However, this corporation may require additional paperwork.

You can decide to incorporate your business. There are two types of corporations S and C. The difference between the two is how the company gets taxed.

If you are not sure what type of corporation is right for your business check with an attorney. If you decide to file paperwork you can contact your government to find out what paperwork needs filed, or you can find a website and file the paperwork through them.

You may be required to get a business identification number, or employer identification number. If you are a sole proprietor, you can choose to use this number in place of your personal identification number. If you charge sales tax, then you may also be required to get a sales tax number. Depending on your type of business you may need a state license to operate your business. Check with your local government or professional to see what kind of documentation that you may need.

Information from The Idiot's Guide to Home Based Businesses