As an entrepreneur, legalizing your business can help it grow tremendously. There are several entities that you may legalize your business as, yet all display a sense of credibility and professionalism to your customers and clients. Below are three different business entities we suggest for our Women Of Lyn bosses:
An LLC, or a limited liability company, is the most prominent business entity among entrepreneurs and small business owners. Essentially, an LLC separates your personal liability from your business in that there is no personal responsibility for any debts accrued from your business. Although this is one of the primary benefits of an LLC, it’s flexibility in ownership and taxation is a bonus. There is no limit to the number of owners, or members, of an LLC, and the LLC has a choice in the way it’s taxed. However, the cost and process in forming and operating an LLC varies by state, so it’s helpful to check your state’s local government website for more information.
2. Sole Proprietorship
A sole proprietorship differs from an LLC in that there is only one owner who isn’t legally separated from the business, which means that you’d be responsible for any debts related to your business. There’s also no cost to form or operate your business under a sole proprietorship. Sole proprietorships are best for businesses that are low-profit and low-risk to minimize liability or financial losses, such as freelancers or independent contractors. To legalize your business as a sole proprietorship, you should consult your state’s small business development center, or SDBC, for all necessary steps in forming and operating your business.
An S-corporation, or S-corp, is the most complex of the three entities due to the requirements that must be met by the business. An S-corp must be incorporated within in the United States, have only one class of stock, and have less than 100 shareholders. Furthermore, the shareholders must exclude partnerships and corporations. S-corps are similar to LLCs in that there is no personal liability attached and have flexibility in ownership and taxation. An S-corp basically combines the benefits of a corporation without being taxed as one, so it’s worth considering in forming your business. To legalize your business as an S-corp is more complex in that you must first file a Certificate of Incorporation within your state, pay all necessary filing fees, and fill out Form 2553 with the IRS.
Although legalizing your business isn’t required, it helps any boss invest and grow into their business.