Small Business Tips 9
There are several types of business entities to choose from when starting a business. It is important to consider tax treatment and benefits, sale of interest in the business and limiting your personal liability. If you have questions about what type of entity best suits you and your business call your LegalShield provider law firm and speak with an attorney.
- A Sole proprietorship is an unincorporated business owned by you alone and typically not registered with the state. Sole proprietorships put your home, personal savings and other assets at risk in the event your business is sued or cannot repay a debt. Some state and local governments require certain types of businesses to apply for licensing or registration even if they are operated as a sole proprietorship. Make sure you understand the laws that govern your industry.
- Partnerships expose you to greater liability than sole proprietorships. In a general partnership you are also responsible for certain actions of your partner(s). Partnerships may require state registration. Partnerships must also file yearly returns with the IRS to report losses, profits and deductions. Before conducting business, partners should draft an agreement outlining how profits, expenses and workload will be divided. Disputes between partners can become costly to resolve and damaging to your business. Setting terms early on will help minimize the risk of a dispute.
- Corporations, sometimes referred to as C corporations, are independent entities formed and owned by one or more shareholders. Corporations may raise capital by selling stock or rely upon capital contributions of its shareholders. Shareholders’ personal assets are protected from legal liability, including business debts and lawsuits. The corporation pays taxes, conducts business and distributes profits to shareholders. Starting and maintaining a corporation requires a great deal of time and paperwork. It is important to keep thorough corporate records and ensure your corporation is fully compliant. In some instances corporations may be taxed both on profits and on dividends paid out to shareholders. It is vital to consult an accountant or tax attorney regarding your corporate taxes.
- S-Corporations are corporations for which shareholders have made the S-Corporation election with the IRS. S-Corporation status avoids the double taxation of C-Corporations by having shareholders taxed personally. There are certain requirements a corporation must meet to be able to qualify under subchapter S. The corporation may not:
- Be a foreign corporation;
- Exceed 100 share holders;
- Have more than one class of stock;
- Have shareholders who are non-resident aliens, corporations, partnerships or certain types of trusts and estates;
- Be an ineligible business class, which includes insurance companies, certain types of financial institutions and domestic sales corporations working internationally.
- Limited Liability Companies (LLC) offer protection to their members similar to that of a corporation. As the member of an LLC your personal assets are protected from the LLC’s liabilities. The liability protection is limited and does not protect members from illegal or wrongful acts, even if that act was committed by an employee. LLCs require less record keeping than corporations. It is up to the members of the LLC to determine how profits are distributed. There are fewer restrictions on the distribution of profits than with a corporation.
Regulations and requirements for your business may vary based on type of industry, as well as state and local laws. No matter what type of entity you choose it is important to seek the advice of an attorney. Contact your LegalShield provider law firm if you have any questions.
As a business owner it is your legal responsibility to establish whether someone working on your company’s behalf is classified by the IRS as an employee or an independent contractor. Making the wrong determination can have serious financial and legal consequences. The following guide will help you understand the primary distinctions between an employee and a contractor. Some states may classify workers differently than the IRS. If you need information on state and local law or have any other questions call your LegalShield provider law firm.
- Worker Classifications – There are four worker classifications made by the IRS.
- Independent Contractor – Under common law, an independent contractor controls the kind of work they take on and how they complete the work. In this circumstance the business hiring them to complete the work would only control the end result or product. While you may set deadlines for an independent contractor you may not set specific work hours.
- Employee – Under common law if you control what, when, where and how work is done, the individual you pay is considered an employee.
- Statutory Employee – Some workers who meet the common law requirements as an independent contractor may still be considered an employee due to specific statutes designating them as such. Statutory employees include:
- Individuals who work from home under specific instruction with materials you provide, which are returned to you or to someone you name;
- Food and beverage delivery drivers (milk excluded);
- Commissioned laundry and dry cleaning drivers;
- Insurance agents working primarily for one life insurance company selling life insurance or annuity contracts; and
- Full-time traveling salespersons who submit orders directly to you from businesses or wholesale establishments.
- Statutory Nonemployee – Statutes deem some workers, who would otherwise be considered employees, nonemployees. These include:
- Direct sellers and real estate workers who are not paid on an hourly basis; and
- Companion sitters (private duty nurses and home health aids) not employed by a placement service.
- Still unsure how to classify a worker? – In some instances it may be difficult to determine the status of a particular worker. The IRS does have a form, which you can complete and submit, allowing them to determine the worker’s status. Form SS-8 can be downloaded here and includes detailed instructions. Before filing the form consult with your LegalShield provider law firm. It may take the IRS six months or more to respond to your request.
- Taxes & Reporting – The main purpose for classifying a worker is to determine the taxes and record keeping for which your business will be responsible.
- Penalties –If you fail to accurately report an employee you may be held liable for past due employment taxes. There are relief provisions in some circumstances. If you believe you have misclassified a worker or have any questions call your LegalShield provider law firm right away.
Many businesses, both online and offline, utilize online services to process customer payments. These services make it easier for customers to pay for goods and services and for your business to take major credit cards. Security, reliability, fees and ease of use are all important factors to consider when selecting a vendor for online payment processing.
- Setup – Setting up an online payment vendor is typically easier and less expensive than establishing a traditional merchant account. When setting up a new account be sure that you understand the full terms of service. If you need assistance reviewing the terms contact your LegalShield provider law firm.
- Security – Do your homework before selecting a company. Make sure you review their security policies and safeguards. Selecting a vendor with lax security could leave you and your customers vulnerable to data theft. Recently, major retailers have been in the news for allowing criminals to access customer payment information. That type of publicity is bad for business. Make sure you use strong passwords when setting up your account. Look for companies that require two-factor authentication to access the administrative functions. Limit the number of employees who can access payment information.
- PCI Compliance – PCI stands for Payment Card Industry and is the legal standard for consumer financial security. Any vendor you select to process payments must be PCI compliant. If your business directly handles credit card information, you too should be PCI compliant. Make sure you understand the rules and train employees appropriately. To learn more visit the PCI Security Standards Council’s website here.
- Fees – Many vendors charge a flat fee per transaction plus a percentage of each payment processed. Some vendors may even charge an initial setup fee for establishing a new account. Per transaction fees may be higher for certain types of credit cards. Make sure you understand the complete range of fees before selecting a vendor.
- Integration – Some online payment systems allow you to integrate a payment console directly into your website. Other providers may require your customer to redirect to their site. Carefully consider the customer experience and ease of use. If your business is primarily web based, talk to your web developer to discuss the integration process. If you take payments in person, consider the vendor who best meets those needs. Some payment processors now offer mobile device integration, which means you can take credit card payments in person through your smart phone or tablet.