Article: Starting a business involves making a number of choices that will affect your tax and personal liability. These choices should be made with the help of a business lawyer whenever possible. To find a qualified attorney, ask your friends and family for a referral. If you cannot get a referral from someone close to you, visit your state's bar website and use their lawyer referral service or lawyer search function. For example, in California, you can speak with a professional for free who will analyze your needs and get you in touch with lawyers who can help. Before you hire an attorney, make sure you go through an initial consultation. During this consultation, ask the attorney about their experience with creating and registering companies, their level of success, and their history of attorney discipline. When you find an attorney you like, be sure to work out an acceptable fee arrangement and get the agreement in writing. The way you organize your business will affect the types of taxes you owe and how you file your returns. For example, sole proprietorships and corporations file income tax returns. In contrast, partnerships file information returns, which is a reporting of income and expenses. If you create a corporation, the entity itself is subject to corporate income tax at both the state and federal level. Also, all dividends you distribute are subject to individual tax rates on the person's personal tax return. If you create a limited liability company (LLC), the Internal Revenue Service (IRS) will treat it as either a corporation, partnership, or as a disregarded entity. Each of these decisions will affect how you pay your taxes. If you create a nonprofit, you may qualify for tax exemption at both the federal and state level. Certain business structures offer protection from personal liability for the debts of the business. However, these businesses are often more complex and require more paperwork and more reporting. On the other hand, if you choose a business structure that does not relieve you from personal liability, you may be required to pay for the debts of your business out of your own pocket. In general, LLCs and corporations offer personal liability protection while sole proprietorships and partnerships usually do not. Different business structures are required to raise capital in different ways. Before you create and register a company, you will want to consider how effective you are at raising money using different means. If you create a corporation, you will have to raise money through loans and personal investments (i.e., the purchase of stocks or the use of venture capitalist firms). If you create a nonprofit entity, you will raise money through personal donations and grants. The type of business structure you choose will dictate the type of recordkeeping and reporting you are required to do. In general, corporations will require the most recordkeeping and reporting while partnerships and sole proprietorships will require the least. Corporations are often required to maintain contracts, leases and other agreements; licenses and permits; and payroll and personnel files. Corporations are also required to make annual reports in many states.
What is a summary of what this article is about?
Consult an attorney. Consider taxes. Determine how much personal liability you want to face. Decide how you want to raise funds. Think about paperwork.