[Starting a Business] [Types of Business Organizations]
[Sole Proprietorship] [Partnership] [Corporation]
[Corporations vs. Limited Liability Company] ['S' Corporations]
[Deducting 'S' Corporation Losses] ['S' vs. 'C' Corporations]
[Elect Year End] [Cash vs. Accrual Method]

Most entrepreneurs are not adequately prepared to get into business. While they have the motivation desire, and talent, many have not taken time to properly investigate and research the business they are interested in starting. Although there isn't anyway you can guarantee that you'll become a successful owner, you can greatly improve our odds by being well prepared for it.

You should have a pre business plan check list which is as follows :

Types of Business Organizations:

When organizing a new business, one of the most important decisions to be made is choosing the structure of a business. Factors influencing your decision about your business organization include:

• Legal restrictions
• Liabilities assumed
  
• Type of business operation
  
• Earnings distribution
  
• Capital needs
  
• Number of employees
  
• Tax advantages or disadvantages
  

Length of business operation :

The advantages and disadvantages of sole proprietorship, partnership and corporation are listed below.

Sole Proprietorship :

This is the easiest and least costly way of starting a business. Finding a location and opening the door for can form a sole proprietorship business. There are likely to be fees to obtain business name registration, a fictitious name certificate and other necessary licenses. Attorney's fees for starting the business will be less than the other business forms because less preparation of documents is required and the owner has absolute authority over all business decisions.

Partnership :

There are several types of partnerships. The two most common types are general and limited partnerships. A general partnership can be formed simply by an oral agreement between two or more persons, but a legal partnership agreement drawn up by an attorney is highly recommended. Legal fees for drawing up a partnership agreement are higher than those for a sole proprietorship, but may be lower than incorporating. A partnership agreement could be helpful in solving any disputes. However, partners are responsible for the other partner's business actions, as well as their own.

A partnership Agreement should include the following:

Amount of equity invested by each partner.
Division of profit or loss Partners compensation.
Distribution of assets on dissolution
Duration of partnership
Provisions for changes or dissolving the partnership
Dispute settlement clause
Restrictions of authority and expenditures
Settlement in case of death or incapacitation

Corporation:

A business may incorporate without an attorney, but legal advice is highly recommended. The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors' meetings and annual stockholders' meetings. Records must be kept to document decisions made by the board of directors. Small, closely held corporations can operate more informally, but record keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a "C" or "S" corporation.

Corporations vs. Limited Liability Company:

A limited liability company, or "LLC", is an unincorporated business entity, which is a cross between a corporation and a partnership. Like a corporation, an LLC protects its members from personal liability for the debts and obligations of the company. Like a partnership, the filing of a “certificate typically forms an LLC of formation" or similar certificate with the Secretary of State and is taxed like a partnership. Also like a partnership, the members of LLCs typically enter into an operating agreement, which establishes how the LLC is managed. This agreement controls the management of the company and how the members relate to each other.

Where S Corporations have limits on the number of shareholders who also must be US residents, LLCs have no restrictions in these regards. This makes the LLC a particularly suitable vehicle for non-US residents. An LLC can have more flexibility in management because this is controlled by the members agreement not by the Business Corporation Act of the state.

Unless the LLC elects to be taxed as a corporation, it will be taxed as a partnership - income and deductions of the LLC will be passed through to members for inclusion in their personal returns. If one or more of the owners are non-US citizens, if you have a non-traditional management structure and so need more flexibility than the standard Officers and Directors arrangement of corporations governed by the state's Business Corporation Act, then an LLC may be for you. If tax considerations are a driving factor, you can achieve the same pass-through taxation by electing S Corporation status as a corporation.

'S' Corporations :

Income and losses from S corporations are generally taxed directly to the individual shareholders and not taxed at the corporate level. Every business owner should periodically examine whether an S corporation election makes sense for the company.

Deducting 'S' Corporation Losses:

One of the major advantages of S Corporation status is that corporate losses can be deducted by the shareholders on their personal returns. However, deductible losses can't exceed the total of the shareholder's basis in the stock plus any loans the shareholder has made to the corporation.

'S' vs. 'C' Corporations:

New Companies need to losses and personal service corporations can take advantage of certain tax strategies not necessarily appropriate for other business forms.

Elect Year End:

A new regular (C) corporation can elect any month for its initial year end. Consider Income and losses from S corporations are generally taxed directly to the individual shareholders and not income. However, once a year end is selected, it can't be changed easily, so make the selection carefully. A new S corporation must usually elect a September, October, November or December year end, unless its natural business year can be shown to end to end at a different time. Those who choose September, October, or November without proving a natural business year must pay an annually adjusted deposit to the IRS.

Cash vs. Accrual Method:

Business with inventory are required to use the accrual method of accounting. Personal service entities are generally permitted to use the cash method. Amortize Startup Costs. You must capitalize the expenses related to starting a business. However, an election can be made to amortize these costs over a period of no less than 60 months.

Very Useful Links about Doing Business in the USA :

[Introduction] [ Starting Your Business] [ Planning Your Business]
[ What makes a Business Successful]
[Estate Planning] [ US-India Tax Treaty] [ Investing in USA]
[ Record-Keeping for Business] [ Taxation]
[US Tax Laws - Highlights] [ General US Immigration Laws] [ Investing in Real Estate]

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