HOW DO I KNOW WHICH TYPE OF BUSINESS ENTITY IS RIGHT OF ME?
Whether you operate your business as a traditional corporation, an S-corporation, a limited liability company, a partnership or some other type of entity depends on the type of business you are running and the taxpayer status that best meets your needs. Certain businesses like those operated by doctors and certified public accountants may be professional corporations while landscapers are precluded from creating a professional corporation. If you want to avoid double taxation on income to the business, you may want to avoid creating a traditional corporation and instead, elect to have your business recognized by the IRS as an S-corporation. If you want your business entity to survive the death of one of its principals, you should avoid creating a partnership which, by law, terminates on the death of a partner. If you are creating a business with family members and want to be able to pass ownership interests down to future generations, you may want to consider creating a limited liability company. Clearly, there are many factors to consider when deciding which type of business entity is right for you and your business. Before deciding on whether you will create a partnership, corporation or some other type of entity, you should discuss your business plan and your goals with an experienced attorney and/or accountant.
ARE THERE WAYS TO PROTECT MYSELF AND THE BUSINESS IF A CO-OWNER OF MY BUSINESS DIES?
Absolutely. Many business owners buy life insurance on the lives of their co-owners so that there are resources available to buy out the interests of the deceased co-owner in the business. The cost of the life insurance policy can be considered a business expense. The policy usually names the surviving co-owner(s) as the beneficiary(ies) of the life insurance policy. Upon the death of a co-owner, the surviving owners can use the death benefit to purchase the interests of the deceased business owner from the deceased owner’s estate. Without the death benefit, many businesses would not survive the death of a co-owner since the surviving owners would not have the assets to purchase the deceased co-owner’s interests.
WHAT TYPES OF INSURANCE DO I NEED TO OPERATE A SMALL BUSINESS?
The types of insurance you need will depend on the type of business you are operating. Regardless of the type of business you own, you will need to insure the space in which you work, as well as the furniture and equipment you use to operate the business. Clearly, if you own the property and building from which the business is operated, you will need to insure against damage to the property/building and against injury to people who are lawfully on your property. If you are a professional such as a doctor or lawyer, you will need professional liability insurance. If the business owns vehicles, they will need to be insured. Although not often considered when looking at insurance expenses, if you have employee you are required to pay for workers compensation insurance and unemployment insurance, as well as short term disability insurance. It is important to research the types of insurance you will need to carry before you start operations so as to avoid penalties for not having adequate coverage.
HOW DO I CREATE A CORPORATION?
To create a corporation you must pay a fee to and file a certificate of incorporation with the New York State Department of State. In the filing you must provide the Department of State with the name and address of the corporation, the name of the person who is creating the corporation, the number of shares being issued and the name of the person to be served in the event the corporation is sued. Before filing the certificate, you can ask the Department of State to confirm that the name you wish to use for your business is not already in use. Although not required, you may purchase a corporate seal and corporate book in which to keep the corporate records. When forming certain business entities, additional elements such as officers, a governing board and bylaws may also be required. Once the corporation is formed, you will need to obtain a tax identification number from the IRS.