Your business name is the first image that your business projects. It is what customers will remember (good or bad) about your business that will either draw them to it or send them to a competitors’ business.
Assuming your business lasts for many years, you will have invested a lot of time and money building it. Part of the value of your business is the name. If you have branded the name, your brand alone might be worth more than the assets of the business itself.
it is very common for people not to spend a lot of time developing their business name. Because of this fact a lot of startup businesses fail within their first 3 years.
When coining a perfect name you should thing about the following things:
1.) Is it easy to remember? 2.) Does it tell people what your business does? 3.) Is the meaning confusing? 4.) Is it unique? 5.) Will your business or your market outgrow the business name? 6.) Can it be branded? 7.) Is anyone else using this name? 8.) Is it trademarked? 9.) Can you trademark it? 10.) Can you protect it in other ways?
Meeting all these categories will help you with a lot more than just creating a name. A marketing strategy will arise, possibly a logo for your brand, or awareness of your competitors in the area when you are researching your name ideas. Already you can see the importance your business name and how it will give you an advantage over your competitors.
Once you have decided on the name of your business you need to decide how you want to form the business. You can learn more by clicking on registration types under the bookkeeping tab.
A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.
Forming a Sole Proprietorship
You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner, this status automatically comes from your business activities. In fact, you may already own one without knowing it. If you are a freelance writer, for example, you are a sole proprietor. But like all businesses, you need to obtain the necessary licenses and permits. Regulations vary by industry, state and locality.
Because you and your business are one and the same, the business itself is not taxed separately-the sole proprietorship income is your income. You report income and/or losses and expenses with a Schedule C and the standard Form 1040 . The “bottom-line amount” from Schedule C transfers to your personal tax return. It’s your responsibility to withhold and pay all income taxes, including self-employment and estimated taxes.
Advantages of a Sole Proprietorship
Easy and inexpensive to form: A sole proprietorship is the simplest and least expensive business structure to establish. Costs are minimal, with legal costs limited to obtaining the necessary license or permits.
Complete control. Because you are the sole owner of the business, you have complete control over all decisions. You aren’t required to consult with anyone else when you need to make decisions or want to make changes.
Easy tax preparation. Your business is not taxed separately, so it’s easy to fulfill the tax reporting requirements for a sole proprietorship. The tax rates are also the lowest of the business structures.
Disadvantages of a Proprietorship
Unlimited personal liability. Because there is no legal separation between you and your business, you can be held personally liable for the debts and obligations of the business. This risk extends to any liabilities incurred as a result of employee actions.
Hard to raise money. Sole proprietors often face challenges when trying to raise money. Because you can’t sell stock in the business, investors won't often invest. Banks are also hesitant to lend to a sole proprietorship because of a perceived lack of credibility when it comes to repayment if the business fails.
Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, and you should check with your state if you are interested in starting a Limited Liability Company.
Owners of an LLC are called members. Most states do not restrict ownership, and so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.
Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.
Effective Date of Election
An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form 8832, Entity Classification Election, to elect how it will be classified for federal tax purposes. Generally, an election specifying an LLC’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances.
See Form 8832 General Instructions for more information.
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
Have only allowable shareholders
including individuals, certain trusts, and estates and
may not include partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have only one class of stock
Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation signed by all the shareholders. See the instructions for Form 2553 for all required information and to determine where to file the form.
The most common type of corporation in the U.S. is the C Corporation.
By forming a C Corporation, business owners create a separate legal structure that helps shield their personal assets from judgments against the company. C Corporations have a specific structure that includes shareholders, directors, and officers.
The C Corporation is a time-tested business formation. It has many advantages, including:
Limited liability for directors, officers, shareholders, and employees
Perpetual existence, even if the owner leaves the company
Enhanced credibility among suppliers and lenders
Unlimited growth potential through the sale of stock
No limit on the number of shareholders, although once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC under the Securities Exchange Act of 1934
Certain tax advantages, including tax-deductible business expenses
The C Corporation structure does have its drawbacks. For instance, a C Corporation's profits are taxed when earned and taxed again when distributed as shareholders' dividends, what's known as "double taxation." Shareholders in a C Corporation also can't deduct any corporate losses. To avoid these concerns, many small business owners choose to form an S Corporation instead.