Business formations for Indiana entrepreneurs
Budding business owners in Indiana have several business formations from which to choose. Choosing the right one is vital to the success of the business.
June 15, 2013
Business formations for Indiana entrepreneursArticle provided by Campbell Kyle Proffitt LLP
Visit us at http://www.ckplaw.com/
Starting a new business is a complicated process. Among the things to be done is to create a viable business plan, find financing for the venture and decide whether to hire staff. Although these are important tasks, from a legal standpoint, one of the most important tasks is to choose the type of entity that your business will be.
Under Indiana law, there are many types of business entities, assuming that your business will be for-profit. The type of business organization that would be right for you is dependent on many factors.
First, each entity will affect your business's finances in different ways, as each entity has different rules regarding taxation and distribution of profits under both Indiana and federal law. Secondly, each type of entity offers different amounts of liability protection; some business entities protect you against personal liability for business debts and liabilities. Finally, each entity has different rules regarding investment in the business and the structure of ownership.
Options available in Indiana
The types of business organizations that are available in Indiana are as follows:
-Sole proprietorship: This is the simplest type of business origination. In a nutshell, it is formed by the owner going into business for himself or herself and involves few legal formalities. The owner has unlimited personal liability for the business' debts and liabilities. Additionally, the business income is taxed on the owner's personal income tax return.
-Partnership: Legally, a partnership is a business where two or more individuals share ownership and profit. The partners share unlimited personal liability and report business income on their individual tax returns.
-Corporation: A corporation is basically a business owned by shareholders. This type of business entity is treated like a person under the law when it comes to debts and liabilities, so the corporation itself is responsible for all its debts and liabilities. The income of the corporation is taxed twice--at the time it is earned by the corporation and also when it is distributed to shareholders or employees as wages or dividends.
-S-Corporation: Has all the liability protections of a corporation, but the income is only taxed once at the employee or shareholder level. However, there are limits on the number of shareholders and other restrictions.
-Limited liability company: Combines a corporation's protection against liability with the simple taxation of a partnership. Rather than shareholders, the LLC has members. Unlike S-Corporations, there are no restrictions on the number of shareholders (or members in this case).
-Limited liability partnership: Functions similar to a partnership, but offers each partner protection against certain debts and liabilities of the business.
An attorney can help
Choosing a business entity is an important and complicated process. The right entity for you depends on your short-term and long-term goals. In addition to ensuring all proper forms and other formalities are taken care of, an attorney who is experienced in business law can advise you on the type of business entity that would fit your needs and goals.