Registering with the State

Your first decision is whether you want to run your business as a sole proprietor or LLC. Personally, I'd recommend LLC if for no other reason that it looks more professional. But it's a bit more expensive. Running your business as a sole proprietor is fine. You can always upgrade. I didn't switch from sole proprietor to LLC for about eight years.

Here is a comparison of Sole Proprietor vs. LLC business structure:

Sole Proprietorship	Limited Liability Company (LLC)
Inexpensive	Costs a bit more
Owner personally liable for all business debts.	Has the the limited personal liability feature of a corporation.
	"LLC" in the business name looks very solid and professional.
The following is a comparison from the Small Business Administration. [Notes in square brackets my own.]
Advantages of a Sole Proprietorship Easiest and least expensive form of ownership to organize. Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the business to keep or reinvest. Profits from the business flow directly to the owner's personal tax return. The business is easy to dissolve, if desired. Disadvantages of a Sole Proprietorship Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans. May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to own a part of the business. Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income). Federal Tax Forms for Sole Proprietorship (only a partial list and some may not apply) Form 1040: Individual Income Tax Return Schedule C: Profit or Loss from Business (or Schedule C-EZ) Schedule SE: Self-Employment Tax Form 1040-ES: Estimated Tax for Individuals Form 4562: Depreciation and Amortization Form 8829: Expenses for Business Use of your Home Employment Tax Forms	Limited Liability Company (LLC) The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation <more info on advantages of corporations> and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership. <more info on disadvantages of corporations> The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued, if desired, by a vote of the members at the time of expiration. LLCs must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets, continuity of life, centralization of management, and free transferability of ownership interests. Federal Tax Forms for LLC Taxed as partnership in most cases; corporation forms must be used if there are more than 2 of the 4 corporate characteristics, as described above. In summary, deciding the form of ownership that best suits your business venture should be given careful consideration. Use your key advisers to assist you in the process.

Disadvantages of a Corporation

The process of incorporation requires more time and money than other forms of organization. [Forming an LLC requires one form, generally.]
Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. [Probably doesn't apply to LLCs.]
Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice. [Does not apply to LLCs.]

Advantages of a Corporation

Shareholders [LLC owners] have limited liability for the corporation's debts or judgments against the corporations.
Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.) [Does not apply to LLCs.]
Corporations can raise additional funds through the sale of stock. [Does not apply to LLCs.]
A corporation may deduct the cost of benefits it provides to officers and employees.
Can elect S corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership. [LLCs can be takes similar to partnerships or sole proprietorships.]

There are other business structures--partnerships, C Corporations, S Corporations. Usually these aren't necessary for startup businesses.

Partnerships

If you're considering forming a partnership, think long and hard about this. Partnerships are a more difficult relationship than a marriage. Need I say more?

LLC

One quick and easy way to form an LLC is through an online service such as BizFilings.

Or select your state to recieve the application directly from us. For free, of course.

Sole Proprietorships

Select your state to register as a sole proprietor with your state.

Questions

Please post your questions on www.steps-to-starting-your-business.com/forums/

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