Business Organization
No matter what business you are in, you will need some form of legal
business organization. There are four basic forms - the sole proprietorship,
the partnership, the limited liability company and the corporation.
Each has advantages and disadvantages, including tax consequences.
We recommend you seek the advice of an attorney and tax consultant
to select the best form for your circumstances.
If you want to operate a sole proprietorship
- Then you must file an Assumed Name Certificate (also known as a
"dba" or "doing business as") with the clerk
of the county/ies in which the business is conducted ONLY IF you
are operating under a name other than the proprietor's (no formation
document is required).
- Personal liability is full, meaning a sole proprietor is personally
responsible for all debts of his or her business.
- The life span of the business is determined by the individual (proprietorships
automatically cease on the retirement or death of the sole proprietor).
- For purposes of taxation, business income is reported and taxed
through the sole proprietor's personal tax return.
If you want to operate a general partnership
- Then you must reach agreement with the partners to file an Assumed
Name Certificate (also known as a "dba" or "doing business
as") with the clerk
of the county/ies in which the business is conducted.
- Personal liability is joint and individual for the general partners
who are responsible for the obligations of the partnership.
- The life-span of the business is for a designated period stipulated
in the partnership agreement; or until a dissolution event occurs.
- For purposes of taxation - a general partnership is not treated
as a separate taxable entity; business income is taxed through each
general partner's personal tax return.
If you want to operate a limited partnership
- Then you must file a Certificate of Limited Partnership (following
an agreement of the partners) with the
New
York State Department of State.
- Personal liability is joint and individual for the general partners
who are responsible for the obligations of the partnership; limited
partners are liable to the extent of their capital contribution to
the partnership.
- The life-span of the business is for a designed period stipulated
in the partnership agreement; or until a dissolution event occurs,
subject to any right to continue that may be stated in the partnership
agreement.
- For purposes of taxation a limited partnership is not treated as
a separate taxable entity; business income is taxed through each partner's
personal tax return.
If you want to operate a limited liability
company
- Then you must file Articles of Organization (signed by one or more
organizers) with the New
York State Department of State.
- Personal liability is generally limited, although the Articles of
Organization can specify that member (s) will be liable for company
debts, etc.
- The life-span of the business may be for a designated period stipulated
in the Articles of Organization; or until a dissolution event occurs
and the company takes no action to continue.
- For purposes of taxation an LLC can elect its classification for
federal tax purposes. An LLC with two or more members can elect to
be an association (corporation) or a partnership; an LLC with only
one member can elect to be an association (corporation) or elect to
be disregarded as an entity separate from its owner (in effect, to
be treated as a sole proprietorship for federal tax purposes).
If you want to operate a business corporation
- Then you must file a Certificate of Incorporation (signed by at
least one incorporator) with the New
York State Department of State
- Personal liability is limited, for shareholders.
- The life-span of the business is perpetual; or for a designated
period stipulated in the Certificate of Incorporation.
- For purposes of taxation a corporation pays state franchise taxes
and taxes on income; shareholders pay taxes on income distributed
as dividends (a limited exception exists for "Subchapter S"
corporations.
For information on state business taxes:
New York State
Department of Taxation & Finance
For information on Federal business taxes:
Internal
Revenue Service
For technical assistance on legal forms of business organizations
contact a business counselor at your nearest New
York State Small Business Development Center or Empire
State Development
Entrepreneurial Assistance
Program (1-800-STATE NY).
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