|
There are a couple of options if you want to operate your business
outside of a business entity formally recognized by Indiana law.
These business forms require no official action or filing with the
Indiana Secretary of State.
A.
Sole Proprietorship
A
single-individual business. The owner will remain personally
liable for all obligations of the business, including the tax
liability of the business.
The benefit
of this structure is its simplicity. A sole proprietorship
requires no formal action to form the venture, and no effort to
maintain the business structure. It also receives the simplest
tax treatment.
B.
General
Partnership
This form of
business is established automatically when two or more people
conduct business as co-owners who share the profits of the
venture. Each partner will be equally liable for the debts
of the partnership unless a formal written partnership agreement
provides otherwise. In the event you decide a General Partnership
is the best entity for your business, each partner will be
personally taxed on his portion of the business profits.
Thus, you
should be very careful of how you conduct business if you
determine not to consult an attorney and use one of the more
ìformalî business forms to conduct your business. To be clear, if
you are in business with another person, and you each share in the
profits of the business, the law will view you as a General
Partnership for the purpose of attributing liability.
Therefore, if you do not want to risk incurring liability for all
of the legal and financial liabilities of the business, you need
to consult an attorney and adopt a formal business structure.
The benefit
of this form is primarily its simplicity. No formal written
partnership agreement is required to form this structure, however,
this is also a risk of conducting business as co-owners. The tax
treatment is also advantageous since the income of the business is
passed through to the individual partners.
C.
Limited Partnership
This
is a formalized version of a General Partner that maintains the
same tax treatment. This form has at least one general partner,
who remains liable for all of the debts and liabilities of the
business, and one limited partner, whose liability is limited to
the amount of his or her capital contribution. In order to
operate through this form, you will need a formal written
partnership agreement. In addition, you must be mindful that the
limited partners of the business refrain from actively
participating in the management of the business. If the limited
partners take an active role in the management of the business,
they will risk incurring unlimited liability.
The form
has the same advantages as a General Partnership plus protection
from liability for the limited partners. It does, however,
require a formal written partnership agreement.
D. Corporation This is a
legal entity completely separate and apart from its shareholders.
It can sue and be sued, borrow and lend money, and own property in
its own name. The shareholders, directors and officers of the
corporation are all protected from the liabilities and debts of
the corporation as long as the corporation complies with all
requirements.
A
corporation shields its shareholders from liability for the debts
and liabilities of the business. However, in order to ensure the
liability protection, all corporate formalities must be observed.
Otherwise, the corporate ìveilî may be pierced, and liability
imposed upon individual shareholders. You will also be required
to file documents with the Indiana Secretary of State both at the
time of and after incorporation. The tax treatment of a
corporation is also more complicated ñ income of the business is
taxed both at the corporate level and again when the shareholders
receive distributions.
E. S Corporation After
forming a corporation, you may elect to obtain S Corporation
status. S Corporation status affords favorable federal income tax
treatment because the income of the business is taxed only once ñ
at the shareholder or employee level. You are eligible for S
Corporation status only if you have no more than 75 employees and
meet certain other criteria.
F. Limited Liability
Company This type of
entity affords both the favorable tax treatment of a partnership
and the liability protection of a corporation. There is no
limitation on the number of members who may comprise an LLC.
There is also no requirement that you have a formal written
agreement defining the relation of the members. However, a formal
written Operating Agreement is highly recommended.
Fee Schedule
for Filings with Indiana Secretary of State
|
