A business is defined by Wikipedia as “a business or commercial entity duly registered, operated, and controlled by a corporation, limited liability company, or limited liability partnership.” A business can also be comprised of a collection of independent legal officers, the officers of an incorporated business, and a collection of employees. Businesses may be privately owned enterprises or publicly held corporations that operate for profit, to meet a social purpose, or further an educational charity. Within the United States, there are presently approximately 1.2 million privately owned businesses.
Small business enterprises have many differences from other types of businesses. Much of the business structure in the United States arises through a legal structure known as a corporation. Corporations are not controlled by any one individual but rather are controlled by the state. This system of business organization allows small businesses to function smoothly without much involvement from the individuals or corporations that own and operate them.
A corporation is a legal entity that exists separate and distinct from the people that own and control it. A corporation’s existence does not limit its liability to the individuals that control it; instead, it is protected by laws that only affect corporations. This means that if a corporation causes injury and has to pay damages, then those damages are actually yours to collect. In contrast, a personal injury occurs when an individual causes damage to another person that was not a party to the action and is actually a third party. Such damages are generally recoverable by the individual who caused the injury.
Many businesses incorporate to avoid personal liability. Examples of ways to incorporate without creating a new legal entity are general partnerships, limited liability companies (LLCs), and cooperative ancillary businesses. General partnerships are business relationships that do not require an investment of cash, credit, or real property.
Limited liability companies (LLCs) operate in much the same way as corporations. However, an LLC is not a legal entity and is not protected by the corporate laws. A business association can be an effective vehicle for protecting business interests in local communities. Forming a business association is usually done by a lawyer, although it can be done by anyone who has knowledge of local business laws.
cooperative businesses, also known as limited-liability companies, are formed to carry out certain activities on behalf of other businesses. These businesses are often set up as partnerships and have the ability to make loans against the assets of the business partners. Limited liability companies are not taxed like corporations and limited-liability companies have less complicated accounting requirements. However, business partnerships may have tax implications for personal income tax deductions and capital gains tax. To ensure that tax obligations are reduced for your business, work with your tax professional.
Forming a business partnership allows you to save time and money by devoting managerial and business decisions to other owners. A limited liability corporation gives you and your partners the ability to shield yourself from personal liability, whereas a liability corporation limits your liability. As your business grows, so will the number of partners you have and if you want to take advantage of tax savings, you may need to add more partners or create a new partnership. Forming a business strategy course with the help of an accountant not only provides you with expert business advice, but it helps you stay on the right track.
When you form a partnership, half of your profits are distributed between your partners and you only pay taxes on the part of your profit which is distributed. This is good if you are looking forward to growth, but if growth is the main aim then you should opt for a corporation. Forming corporations requires yearly filing with the IRS and imposes various fines if you are unable to meet the deadlines. Although the annual fee is minimal, if you fail to meet deadlines then corporation tax will be imposed and you will lose your ability to protect yourself from liability. The IRS can also revoke your license to operate if you become delinquent in paying your corporation tax.