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Business Registration

Registering Your Home-Based Business

Registering your business and choosing a business entity has everlasting consequences on your business’ taxation and your liability protection.  For this reason it is important to make the best decision possible given the known information about the intent of your business.  Once a decision is made, your business registration needs to be filed with the proper state authorities and you need to obtain an Employer Identification Number (EIN) number to formally create the entity in the eyes of the law.

The Tax Club is committed to helping start-up business owners with this important decision.  For this reason we have supplied the below information so you can be better equipped for consultations with our advisors.

Keep in mind that although the information is accurate, it is only intended to be used in conjunction with a certified tax professional or an attorney.  How these statements apply to your business will need thorough analysis. One truth is that all of the entities provide personal liability protection, except for the Sole Proprietor that does not use a separate legal entity. The Tax Club hopes this information will help you have a more rewarding and profitable consultation with your chosen professional.

Business Entities/Tax Treatment:

Sole Proprietor
There are many small business owners that simply start conducting business and report all their profits and losses directly on their personal tax return without creating a business entity.  Although this is legal, without a formal business registration, the owner is afforded no liability protection, so one’s personal assets are at risk in the event of a lawsuit, bankruptcy, or similar event.  The Tax Club does not advise its clients to pursue this path.

Partnership (GP, LP, LTD, LLC, LLP)
The partnership encompasses a variety of entity types, whose suffixes are listed above. The important characteristic to note is that with this type of business registration, allocations between the partners of profits, losses and capital can be manipulated however the owners see fit, unlike a corporation where those items are allocated by the percentage of stock ownership. The net income from the ordinary operations of a partnership is taxed at regular income tax rates, and also at the 15.3% self-employment tax rate. The S-corporation (discussed next) offers ways of avoiding some of the self-employment tax.

S-Corporation (Inc.)
The S-corporation is a popular entity selection amongst many of our clients involved in e-commerce or consulting businesses.  The S-corporation is considered a flow-through entity, meaning the net profit or loss from the business is reported on the personal tax return and gets added to or subtracted from your personal income.  This also means that S-corporations can avoid “double taxation”- the event of taxing income to the corporation, and then again personally when the profits are distributed as dividends.  An S-corporation also allows its management to avoid some self employment tax by paying the owners as employees of the company at a “fair and reasonable” salary rate. The Tax Club professionals will advise you on how to pay yourself a salary to minimize your tax liability while staying in full compliance with the law.

Limited Liability Company (LLC) - Single Member (taxed as a sole proprietorship), Partnership/Multi-Member, C-corporation or S-corporation
LLCs are widely used across all industries, but most of our clients who select this type of business registration are involved in real estate investment.  LLCs are referred to as hybrid entities. This means that a business organized as an LLC has the ability to be taxed as a sole proprietorship, C-corporation, S-corporation or partnership.  Many of our clients choose an LLC because of the flexibility in choosing how they want to be taxed.

C-Corporation (Inc.)
For federal and state income tax purposes, a C-corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. Unlike a partnership or S-corporation, the net profit or loss from the business does not flow to the personal tax return. When forming a corporation prospective shareholders can exchange money and/or property for the corporation's capital stock.  This stock and ownership is easily transferrable through the use of stock certificates. This type of business registration is subject to double taxation, but offers more employee benefit plans to owner-employees.  The C-corporation is the entity type of most Fortune 500 companies. 

The Tax Club wants to increase our clients' profitability by helping them make the best business decisions. To learn more about our business registration services, contact us today and schedule your free consultation.