Small Business Counseling

Thinking about starting a small business? Herron & Associates Tax Services, LLC can offer counseling to those individuals who are entering into the world of business. Herron & Associates Tax Services, LLC will counsel on the type of business structure you may need depending on the particular product the business will offer. The decision as to what type of business you chose is very important because the tax application which is different based on the type of business.

Sole Proprietorship

This type of business is recommended if you are entering into the business world as the business owner and do not expect to have any employees. This choice will place taxation on the income you earned and will require you to report that income on your individual tax return (Form 1040). Even if you decide later to add employees, this type of business should be your choice. The owner is solely liable for all legal issues involving the business and if a lawsuit is lodged against the company, the owner’s personal assets can be attached for settling the lawsuit. A business owned by a husband and wife can be still considered a sole proprietorship. If a sole proprietorship wants to shift the legal aspect of the business solely to the business, then it should operate as a Limited Liability Corporation (LLC). This allows the owners to run the business under the guise of a sole proprietorship but with the protection of a corporation.

Partnership

This type of business is recommended if there is more than one owner/business partner. This type of business is similar to the Sole Proprietorship in tax reporting although it will generate additional forms for each partner as well as an additional form for the partnership. Each partner is equally liable for legal issues involving the Partnership which means that each partner’s personal assets can be attached for settling the lawsuit. This type of business should be very carefully thought out because each partner is responsible for any action of the other partner(s). Profit or losses are distributed bases on the individual partner’s share of the partnership. Each partner must report his/her share of the profit or losses on their individual tax return. Partnerships have certain reporting requirements to the State in which it is organized. If a partnership wants to shift the legal aspect of the business solely to the business, then it should operate as a Limited Liability Partnership (LLP). This allows the partners to run the business under the guise of a partnership but with the protection of a corporation.

Corporation

This type of business is recommended if the business will seek investors (called shareholders). This business can have an unlimited number of shareholders. This business type is usually operated under board members (called Board of Directors) who govern the activities of the business. The Board of Directors reports the shareholders who are not active in the operation of the corporation. The corporation has its own reporting requirements for tax purposes. The Board of Directors is not liable for any legal issues involving the corporation unless it is proven that direct intent to perform illegal actions. Corporations have reporting responsibilities to the Federal Trade Commission (FTC) and to the State in which it is organized. Corporation must have board meetings and the minutes from those meetings are subject to review by the FTC and/or the State where it is organized.

Sub Chapter Corporation (S-Corp)

This type of business enjoys the benefits of a corporation within certain restrictions. S-Corps are restricted to 10 owners (shareholder) or less. It offers the flexibility of a sole proprietorship and partnership as far as ownership but the benefits of a corporation. It does not have the reporting responsibilities to the FTC and/or the State where it is organized like a corporation does.

Limited Liability Companies (LLC)

A limited liability company is a legal structured organization that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. It does not have the reporting responsibilities to the FTC and/or the State where it is organized like a corporation does.

Limited Liability Partnership (LLP)

A Limited Liability Partnership is a partnership in which some or all partners (depending on the jurisdiction) have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. This is an important difference from that of an unlimited partnership. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. It does not have the reporting responsibilities to the FTC and/or the State where it is organized like a corporation does.

Nonprofit Tax Exempt (501(c)3

A 501(c) company is an American tax-exempt nonprofit organization. Section 501(c) of the United States Internal Revenue Code (26 U.S.C. § 501(c)) provides that 28 types of nonprofit organizations are exempt from some federal income taxes. Sections 503 through 505 set out the requirements for attaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well.

Small Business Counseling