When starting your business, one of the first steps is to decide what type of entity to form. The staff at Evans-Graff helps you make educated decisions during the business formation process enabling you to make choices that fit your needs.
Sole Proprietorship
A sole proprietor is an individual operating business as a self-employed person.
The owner is personally liable for all business debts and actions and reports all the profits and losses from the business on his/her individual return on a Schedule C.
General Partnership
General Partnerships - Two or more legal entities (any kind of legal entity or individual can be a partner) operating as an unincorporated business - each of those entities are individually responsible for the partnership.
This means that each partner is personally liable for the partnership's debts and legal liabilities.
The partnership files its own tax return, which produces a form (K1) that reflects the partner's income to be included on the individual's tax return. Self-employment tax is paid on income.
Limited Partnership
Limited Partnerships - The structure of a limited partnership is similar to the general partnership. In a limited partnership, there are two different kinds of partners: general and limited.
A limited partner does not take part in the management of the partnership and is not liable for any more than his individual capital investment.
The Limited Partnership files a return the same as a General Partnership.
Limited Liability Company - LLC
A limited liability company - LLC - is an entity similar to a corporation in that it limits the liability of the owners of the company and it is regulated by state law.
IRS does not recognize an LLC as a taxing entity. You must tell the IRS how you will be taxed: Sole Proprietorship, Partnership, S-Corporation, or C-Corporation.
Corporation (S)
An "S" corporation is much like a "C" corporation in that it is also its own legal entity protecting its shareholders from legal liability.
However, an "S" corporation allows shareholders to claim their share of the corporation's income directly on their personal tax return by a K1 Form prepared with the corporate tax return. No self-employment tax is paid on this income. However, officer/owner must be paid wages in addition to paying income taxes on "profits" of the company.
Corporation (C)
A corporation is a type of business structure created and regulated by state law. It is an independent legal entity, separate from the people or legal entities that own, control and manage it.
Since corporations prepare its own tax return and are taxed on its own income, shareholders have only two ways to take profits out of the company. One is by wages and the other is to claim taxable dividends on the stock. Shareholders of a "C" corporation are "double taxed" on their dividend income. Officers/owners of corporations must be paid wages.
Business Formation and Continuation Documents:
Corporations:
State Trade Name
Declaration of Holder of Trade Name
State Trade Mark
Certificate of Disclosure
Articles of Incorporation
By Laws
Election by a Small Business
Corporation
Publication
Annual Reports
Limited Liability Corporations:
State Trade Name
Declaration of Holder of Trade Name
State Trade Mark
Articles of Organization
Operating Agreement
Election by a Small Business
Corporation
Entity Classification Election
Publication
Changes:
Articles of Dissolution
Articles of Termination
Notice of Winding Up
Articles of Amendment
Articles of Correction
Statutory Agent - Change of Agent, Address, Resignation
Federal, State, and City document preparation for:
Employer's Identification Number
Election by a Small Business Corporation
Election Classification
Arizona Joint Tax
City and State Sales Tax and Licenses
