HE SAYS:

One of the first and, perhaps, most important business decisions you will make is the form in which you are going to operate your business.   This decision will affect all aspects of your business, including liability and tax related issues.

Sole Proprietorship is the most basic of business structures.   You conduct business in your own name or under an “Assumed Business Name” also known as a D.B.A.   Your D.B.A. is simply a trade or business name that you file with the County Clerk’s Office in the county in which you reside or conduct business.   As a sole proprietor, you assume full personal responsibility for all debts of the business and for all claims arising from its operation, including all taxes that become due.

A partnership is appropriate if your business is operated by two or more people or other entities under a formal agreement.   Each partner contributes money, property, labor or skills and each partner shares in the profits and losses of the business.   The Partnership must file an income tax return; however, the taxes are paid by the individual partners and not by the partnership.    Generally, all partners are liable for any actions taken by any of the partners in furtherance of the partnership.

A corporation is treated as a legal entity that is separate from its owners and which has its own legal rights and duties.   The owners of a corporation are the shareholders who exchange money or property, or both, for capital stock in the corporation.   Each year the shareholders elect a Board of Directors and Officers who run the day to day operation of the corporation.    The shareholders have limited personal liability for the debts and obligations of the corporation.   Unless you file as an “S Corporation”, the corporation is subject to a corporate tax on its profits before it is distributed to the shareholders who are also taxed on this distribution.

The law also recognizes, as a separate legal entity, Limited Liability Companies. The owners of the LLC are called members and the extent of their ownership interest is measured by the amount of their capital contribution to the LLC.   Unless otherwise stated in the Articles of Organization, profits and losses of the LLC are allocated, among the members, proportionately, on the basis of the value of each member’s monetary contribution to the LLC.

The above summary is based on the laws of New York State.   Anyone seeking to start a business is recommended to first obtain the advice of a knowledgeable attorney and accountant.

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