Which entity is for you?

Starting a business can be a scary thing, but once we get over the initial shock of making the first step we have to start figuring out what's the best for your business.

First thing is deciding what to name your business. You must then register your business with the secretary of state in your state, but before that, you need to know which entity you are going to do business as. So here are the options to help decide:

Sole Proprietor - You are an self-employed individual. You can use your personal social security number (SSN) or file for employer identification number (EIN), to use for business purposes (W-9's and tax documents). You will pay self-employment tax annually, suggested quarterly estimated tax deposits. If the business is fully or partial run out of your home, there is a home office deduction for tax time. Expenses still need to be kept separately, and there are no additional year end taxes (Double check with your state for specifics on this).

Partnership - This is a business built between two or more people; each person holding a percentage, where the total is 100%. For example: Partner A owns 44%, Partner B owns 26%, and Partner C owns 30%, totaling 100%. No income tax is paid, though an EIN is required for all business purposes. Partners are not employees; at year end the partnership will provide each partner with a K-1 that reports the portion of income each partner claims on their taxes based upon their ownership percentage. Expenses must be kept separately, and there are no additional year end taxes (Double check with your state for specifics on this).

Limited Liability Corporation (LLC) - There are two options here, either a single-member LLC or a domestic LLC. A single-member LLC can not elect a partnership or corporation at year end; meaning they are still solely responsible for all liability. Single-member LLC can elect to use their SSN or get an EIN, each shareholder owning a percentage, and each receiving a K-1at tax time to report. Expenses must be kept separately; and there are no additional federal year end taxes, although there are normally year end state taxes due (Double check with your state for specifics on this, California is $800+/year).

S Corporation - Small corporation with up to 100 shareholders, an EIN is required. With some requirements of: being a domestic corporations, only allowable shareholders (individuals, certain trusts, and estates), one class of stock, and may not be an ineligible corporation. There can be one or more owners, each owning a percentage, and each receiving a K-1at tax time to report. Corporations allow for reduced (eliminated if done right) personal liability. A shareholder must be paid on payroll with a reasonable monthly wage, meaning this shareholder will receive a W-2 at year end. Expenses must be kept separately; and there are no additional federal year end taxes, although there are normally year end state taxes due (Double check with your state for specifics on this, California is $800+/year).

C Corporation - Very similar to the S Corporation, but this is for larger companies that would hold over 1000 shareholders; an EIN is required. A C Corporation can also be an international corporation, and high asset ($10 million or more) corporations require M-3 to be filed. For the most part, everything else in the S Corporation applies here as well. Expenses must be kept separately; and there are no additional federal year end taxes, although there are normally year end state taxes due (Double check with your state for specifics on this, California is $800+/year).

Once you have decided on your entity, you file a Fictitious Name Statement through your Secretary of State, and apply for your appropriate EIN with the IRS (if applicable).