On the Write Road

Owning a business means you:

A. Do tasks that are boring.
B. Do tasks that are fun.
C. All of the above.Well, I know the answer is C because filing legal paper work to set up a business with the State of California is not on my favorite-things-to-do list. But because I had a bit more knowledge on the subject than my business partner Melody (thanks Melody), I volunteered to discover what type of business entity or form of ownership was best for our company and how to set it up.



Learning about Business Entities

So what is a business entity? A business entity is a term the Internal Revenue Service (IRS) uses for legally recognized forms of business. The IRS defines five types of entities: Sole Proprietorships, Partnerships, Limited Liability Companies (LLC), Corporations, and S Corporations. BizFilings, an incorporation service, has created a quick reference table that compares each form of business by certain characteristics, such as liability, operational requirements, taxation, etc.

After reading about each entity, I called my tax accountant and discussed my choices. He felt establishing an LLC was the best choice for us because it offers the same liability protection as a corporation, but without the corporate tax and the required formalities, such as formal meeting and record keeping. The LLC is a relatively new type of entity that has only recently become available in all 50 states. My tax accountant told me the easiest way to create the LLC was to go online and use a legal document service. He recommended I use LegalZoom. The process was very simple. I only had to fill out an online questionnaire and LegalZoom did everything else.



After several weeks my documents arrived in the mail. I received a federal tax ID/EIN (Employer Identification Number), a binder with all the appropriate documents, and a friendly letter from the California Franchise Tax Board stating I now owed them $800, the annual tax due for the privilege of doing business here.

So all-in-all the process was quick and not too painful.

Note: I am not an expert in forming business entities so before you choose one, talk to a knowledgeable tax attorney and visit such websites as the Small Business Association (SBA) http://www.sba.gov/index.html and the IRS (business section at http://www.irs.gov/index.html.

Posted in: business entity, irs, limited liability corporation, llc on Wednesday, September 17, 2008 at