BUSINESS REGISTRATION
When you make the decision of starting your own business, there are two important elements that you must take into account to avoid future headaches.
1-LIABILITY. Who is responsible to pay if the business is sued, and to pay the creditor if the business become insolvent.
2-TAXES: The type of business entity you register will determine how the IRS treat you when it comes to pay taxes.
SOLE PROPRIETOR: is the most simple way of conducting business, in fact your don't need any formal registration to conduct business, you could do it using your name and social security.
However, you and your business are considered the same and in case someone sues your business, as the owner you are liable, your assets and the business assets, your savings and the business savings could be used to cover the law suit.
When it comes to taxes, you pay taxes at a personal rate on the net income.
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LIMITED LIABILITY COMPANY (LLC)
The LLC is a hybrid of a SOLE PROPRIETOR and a CORPORATION.
A LLC allows the owner to choose how to pay taxes, a sole owner may report the business income with his/her personal taxes or choose to ask the IRS to allow the business to pay taxes as a corporation while it covers the owner against any liability.
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CORPORATION
A corporation is a legally established entity that can enter into contracts, own assets and incur debt, as well as sue and be sued—all separately from its owner(s).
Because it is defined by law, a corporation can technically exist forever.
This business structure is completely separate from the owner and bear all responsibilities when it comes to liability.
As far as taxes is concerned, you may pay taxes as Corporation C, or ask permission to the IRS to pay taxes as Corporation S.
Corporation C is called double taxation corporation because the Corporation has to pay taxes on its net income and when it passes to the shareholders as dividends, they have to pay taxes on the same earnings.
The S Corporation is a pass through entity, the net income is passed through to the share holders who pay only personal taxes at their personal rate.
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