Are you ready to learn more about opening your own small business? Be sure to read up on part 1 and part 2 of our small business series to catch up, then read on to learn more about the legal structure and choosing a name for your company.
You’ve drafted your business plan and found funding for your business. Congratulations! You’ve made it this far, but the next steps are just as vital. What form of business entity will you create? There are several options:
- Sole Proprietorship - an unincorporated business owned by one person
- Partnership - ownership shared between two or more persons
- Corporation - shareholders exchange money, property, or both, for the corporation's capital stock
- S Corporation - pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes
- Limited Liability Company (LLC) - business determined by individual state statutes
The type of business you choose to operate will have explicit tax implications and will determine where you need to register your business. The federal government levies four types of taxes:
- Income tax
- Self-employment tax
- Taxes for employers
- Excise taxes
Read more about these taxes and how they affect small businesses. Also, note that your business may be subject to state income taxes. This is based on the laws within the state where your business is registered.
Naming and registering your business for tax purposes
If you choose to name your business something other than your own personal, legal name, you’ll need to register that information with the appropriate authorities.
According to the Small Business Association (SBA), unless you choose to rename your business and register it as a “Doing Business As,” the legal name of your business defaults to the name of the person or entity that owns the business. This is especially important when considering partnerships or ventures that involve more than one person.
A legal name is required for tax purposes, applications and permits. However, some states do not require this step. Check with your local government to verify.
Once you’ve selected and registered your business name, you’ll need a tax identification number for the business. Generally, businesses need an Employer Identification Number, but not all states require it.
Here’s a handy chart to see if you’ll need an EIN for tax purposes.
We’ll provide more information on how to open your business and get started!