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Legal Organization
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RECORDKEEPING TIPS
Brigitte A. Thompson
Once you decide you want to open a business, you need to determine
your legal organization. The most common choice for a single business
owner is a sole proprietorship. This is the easiest option to
establish and maintain.
IRS Publication 583 defines a sole proprietorship as the simplest
form of business organization. "The business has no existence
apart from you, the owner. Its liabilities are your personal liabilities
and you undertake the risks of the business for all assets owned,
whether used in the business or personally owned."
This means that you are ultimately responsible and liable for
any business debt and your personal assets can be used to cover
a business debt. This unlimited liability is
the greatest negative aspect associated with this form of business
organization.
As a small business owner, you may want to do some research into
the other legal entities such as a Limited Liability Corporation
or an S Corporation. Both of these entities provide limited
liability, which allows you to separate from your business.
Thus, your personal assets can realize some protection in the
event of a business debt or lawsuit.
Each option has its own income tax ramifications, so you may want
to do some research before you decide. There are some IRS publications
that can assist you with this decision. You can order Publication
334, 541, 542, and 589 by calling the IRS at 1-800-829-3676. It
is also a good idea to consult a lawyer or accountant.
All information is based
on the current federal tax laws of the United States. Since these
laws are subject to change, neither the author nor BusyParentsOnline.com
assume liability for modifications that occur after the creation
of this work. Every effort has been made to ensure this information
is as accurate and complete as possible. These articles contain
general information for businesses and are offered as an overview
of the law.
© 2003 Brigitte A.
Thompson
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