The financial side of how you set up your business

When you are setting up your business, you have several different options. Each business has different financial considerations as well. Whenever you open your own business, you should always open a separate checking account for your business to keep your business funds separate from your personal funds.

Sole proprietorship
This business is owned by an individual. A sole proprietorship is normally a part-time business, a start-up, or consultants. When you set up a sole proprietorship, you will file an individual tax return that includes self-employment tax implications. A sole proprietorship does not have as many start-up costs because you do not need to hire a lawyer and draw up official paperwork.

Since you are paying yourself, you do not need to establish a payroll. It is much easier to set up a bank account for your business so that you do not confuse your business funds with your personal funds. This makes it much easier to handle your business finances and have enough money set aside for taxes.

A sole proprietorship is directly linked to you. You will be responsible for legal fess and any debts the company encounters. You are also responsible for growing your company and finding outside investors to help it grow.

LLC
Some people find that their business will be bigger than a sole proprietorship so they apply for a limited liability company or LLC. An LLC is owned by one or several individuals. It is not considered a partnership or a corporation even though it has many of the same features. The owners will have the same protection as a corporation because they will not be held personally responsible for debts. They have more flexibility than a corporation because they do not need to keep minutes or have meetings in order to operate.

You will be responsible for paying taxes on the business. You will need to pay taxes for your employees and provide them with a W-2 at the end of the tax year. The nice thing about a LLC is that you will avoid the double taxation of paying corporate tax and individual tax. You will need to file all the necessary paperwork to begin your LLC which includes documentation with the Secretary of State. You must also pay fees to the Secretary of State and legal fees to the attorney or lawyer that draws up the paperwork. In order to start your LLC, you will need to obtain a business license and comply with your local and state regulations.

If you declare bankruptcy or you die, your business will be dissolved. If you want your company to grow and eventually take it public, you are better off to declare a corporation.

Corporation
A corporation can live forever, even if you pass away. It is also much easier to take your business public when you are ready to expand your business. A corporation will protect you from being personally responsible for any debts or lawsuits. It is a separate and legal entity from your personal life. Corporations are taxed at a lower rate from other businesses and it is easier to obtain financing for your business.

You will need to register your corporate name with your city and your state, as well as web site domains and other areas. This cost varies with each state, but it is normally around $50 or more to get started. You also need to decide what your corporation type is, an S-Corporation or a C-Corporation. You will be responsible for filing your quarterly and yearly taxes and making sure all the numbers match. When you are setting up a corporation, you will need the help of a lawyer to get all the paperwork completed properly.

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