Taxes: Unless you choose to be a sole proprietorship or single member LLC, a separate tax return will have to be completed for your business and unless you choose to form a c-corporation, you will pay taxes on your business earnings via your personal tax return. Under the c-corporation business model, the corporation pays taxes on the corporation’s profits and the owners or shareholders only pays personal taxes on their income from the corporation.
Liability: The main rationale for forming a business entity is to protect you personally from liability. Say for example, a customer slips and falls in your store, one of your employees damages a customer’s house while doing a home improvement. or your business closes and the landlord still wants his rent. In all of these situations, you do not want to withdraw money from your personal bank account to satisfy your business obligations. By forming an LLC or corporation, you will generally not be personally responsible for your business debts and obligations.
Sole proprietorships and partnership do not offer liability protection. As an unincorporated, unorganized business owner, partner in a partnership or sole proprietor, you could be personally liable in the above scenarios. You could be liable for the customer’s injuries, the homeowner’s damages, and the rent on the leased space.
Special Note for Franchisees: Form your business entity before signing the franchise agreement. Some franchisors charge a transfer fee or have other requirements in order for you to transfer your franchised business to a newly formed business entity. There may be some special verbiage requirements that need to be in your incorporation or formation documents. Make sure to note the requirements to avoid extra costs and delays, because you have to file an amendment.
Also as a franchisee, you will be doing business under the franchise brand name. The brand name is considered your trade name under state law. You need to registration the trade name to comply with laws.
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Contact Gettins’ Law, LLC at 513-400-3895 or by email at email@example.com