Sole Proprietor, LLC or S-Corporation

I am not a lawyer, but here are my investigations on the different types of entities you can be to run your business. Always check with a lawyer for your own state or location rules and guidelines.

Sole Proprietor
This is how most businesses start - a person who does something. You file your own taxes and just use a Schedule C to report the extra earnings. You are fully liable for your business - if there is a problem, someone can sue you for everything you own. There is no paperwork, perhaps just a DBA to be filed at your local town hall. When you die, your entire "company" goes to whoever inherits your personal wealth.

You have to file to form a LLC and then file an annual report for it as well. The filing cost varies wildly from state to state, from around $90 in Delaware to over $500 in Massachusetts. You need to talk to a tax accountant about the issues in creating your LLC in a different state, in some cases you may end up with double tax. LLCs let you file your income on your own taxes (schedule C). LLCs do put a significant legal safety barrier between your company and you. If your company is sued, unless you are directly at fault yourself, your personal assets are usually safe. Depending on the state, your LLC may be able to keep going (under new ownership) if you pass away.

More Details about LLCs

You have to file for a S-Corporation and usually the requirements and fees are higher than with a LLC. You also get legal protection here for liability, although some say it is not as robust as with a LLC. In essence you have 'shareholders' who are not liable for the activities of the corporation - but you do still have officers who are responsible for what the corporation does. Double taxation can be a big issue here depending on how it is set up. There are many legal requirements as far as yearly meetings, who runs the company, how they are elected, etc. In general this entity is intended for larger organizations. When a given owner dies, the corporation just keeps on going.

Legal Issues for Home Businesses
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