Starting a business in Indiana? Choose your formation carefully

April 11, 2013 (Press-News.org) Starting a business in Indiana? Choose your formation carefully

Article provided by Lewis & Kappes
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Starting a new business is a huge endeavor. If you're about to head down this path, you've probably spent a lot of time worrying about things like creating a business plan, lining up investors, finding customers and hiring staff. However, in the midst of all of these big issues, it is important not to overlook a basic -- but crucial -- business planning decision: what structure should your business take?

Assuming you are forming a for-profit entity, Indiana law gives you several options for how to structure your business. There are three main factors to keep in mind when choosing a business structure. First, you will need to look at your appetite for liability - some forms shield you from personal liability if something goes wrong, while others do not. Second, you will want to consider which structure best fits your financial goals, especially with regard to taxation and distribution of profits. Finally, you'll want to choose a structure that accommodates your ownership and investment goals.

Indiana business structures

Choosing a business structure is a very important decision, so it is advisable to consult with an Indiana business law attorney before filing any paperwork. However, if you are considering starting a business, you can benefit from an overview of the most common business organizations available to Indiana entrepreneurs:
-Sole proprietorship: This is the simplest business organization, and involves one person going into business for him or herself. The owner assumes personal liability for the business and reports all business income on his or her personal tax return.

-General partnership: A general partnership is basically a sole proprietorship that involves two or more people. The partners share personal liability for the business, and report their shares of business income on their personal tax returns.

-Corporation: A corporation is a business that is owned by shareholders. The corporation -- and not the individual shareholders -- is responsible for the business's liabilities. Generally, business income is taxed twice: at the time it is earned by the corporation and at the time it is distributed in the form of wages or shareholder dividends.

-S-Corporation: After incorporation, an Indiana corporation can file for S-Corporation status. S-Corporations only pay taxes when income is distributed at the employee or shareholder level. However, there are some qualification limits, including a requirement that the corporation has no more than 75 shareholders.

-Limited liability company: An LLC functions like a combination of a corporation and a general partnership. Members in an LLC are shielded from personal liability, but enjoy single taxation similar to a general partnership.

-Limited liability partnership: An LLP is similar to a general partnership, but the partners are shielded from personal liability for the actions of another partner.

Which of these forms is right for your business will depend on your own short-term needs and long-term goals. Once you have reviewed this list, talk with an Indiana business attorney who can work with you to help make your new business a success.