The type of business entity you choose will depend on how many owners the business has, potential exposure to liability, and how you want to pay taxes on the business. Available business entities include C corporations, S corporations, partnerships, limited partnerships, and limited liability companies. If you own the business by yourself, you can run it as a sole proprietorship.
It’s best to discuss the pros and cons of each type of business entity with a business law attorney who understands your circumstances and goals and can direct you to the form that is right for you (as well as preparing the documents needed to establish your business and register it with the state).
You may be able to avoid getting an employer identification number (EIN) for your business if you have a sole proprietorship or a single-member limited liability company (LLC), but most businesses need to have an EIN, which functions as a tax identification number with the IRS. Your business uses this number to file tax returns, open business bank accounts, and apply for various licenses. If you are not required to have an EIN, you may be able to use your Social Security number, but this may expose you to identity theft. It’s better to obtain an EIN for your business; your attorney can help you with the process.
Whether someone who does work for your business is an employee or an independent contractor depends on the level of control your business exercises over the relationship. For instance, can your business control what the worker does and how they do their job? Does your business reimburse the worker’s expenses, or provide tools and supplies? Does your business offer the worker a retirement plan, vacation pay, insurance, or other benefits? Does the worker perform similar work for other businesses, or only for your business?
Whether a worker is an employee or an independent contractor makes a difference from a legal and tax standpoint. Employment and labor laws do not apply to a worker who is an independent contractor, and no taxes are withheld from an independent contractor’s pay. Employees, on the other hand, have Social Security, Medicare, and income taxes withheld from their pay.
Yes, you do! Planning for a business after the death or retirement of an owner is called succession planning, and it is essential to making sure the business is successful after a smooth transition to the new owner. If you have put a lot of effort and resources into building your business, don’t let it all go to waste by failing to plan—especially if you want the business to keep providing for your family after you’re gone.