Determining Your Business Type

(inspirational music) – Starting a small business requires determination and motivation. In the following video, attorney Steve Keister
shares information on topics potential small business
owners should consider when they’re developing a business plan. – Hello. I’d like to chat with you a little bit about the legal ramifications
of small businesses and how they’re created, and
how they might be expanded. First of all, I think
you need to understand that there are several different entities, or ways in which you can
set up a small business. The most simple is a Sole Proprietorship, and that’s where you simply
hang up your shingle, and practice your business
and collect your funds, and then report that to the
Internal Revenue Service as a Sole Proprietorship under your own Social Security Number. That does not require any registration with the state of Ohio, and does have some benefits to you. However, the most prominent issue with doing a Sole Proprietorship is the fact that your liability can extend to your personal assets. So if you’re operating a business, and as a result of the
operation of that business, you have some issues that
caused some liability, you want to limit your liability to the assets of that company. In a Sole Proprietorship, you are actually exposing
your other assets. Your home, your investments, and so forth. The second entity that’s been longstanding is a corporation. A corporation has to be, an entity formed through
the Ohio Secretary of State, in which you set up a Board
of Directors, officers, and stockholders, and that you must maintain
a corporation book, and that corporation
book must be maintained on an updated basis. The corporation would have
a number of tax benefits, and would also then limit the liability to the assets of the corporation, in the event that you
would have any issues concerning the operation of your business. The negative with the corporation, is really two-fold. One of the expenses in developing and
maintaining the corporation, such as the tax returns and
keeping up the corporate books, and the second is the
double taxation problem. So that if you had significant
income from the corporation, and your expenses were
less than the total income, the net profit would be
taxable to the corporation, and then when it was expanded
to you as a shareholder, you would have to pay tax on the dividends from the corporation. A third entity, and really it’s the entity of the primary choice in today’s
legal economic situation, is called a Limited Liability Company. A Limited Liability Company is also an entity that’s registered with the Ohio Secretary of State, but the Limited Liability Company combines the best of both
worlds, in that, number one, you do limit your liability
to the assets of the company in the event there’s any
issues within the business, such as car accidents, or significant bad business development, something of that nature. A positive with the Limited
Liability Company also would be the fact that your taxes are passed through directly to you, so your accountant or your tax preparer would actually prepare a tax return for a Limited Liability Company, but that company would not pay taxes, and you would pay the
sole taxes on that entity, as opposed to having it expose
you to a double taxation. Folks come in to see me
about starting a business, but sometimes they’ll come in about expanding their business. They might be a Sole Proprietorship now, but they really developed
into where they have employees and they have people on the road with vehicles making deliveries,
or making service calls. And in that situation, the expansion from a Sole
Proprietor to a corporation to a Limited Liability
Company can be made. You already have some things in place. Your various permits, and the items that you would have as far as setting up
your taxes and so forth. But you would need to expand that, again, register with the
Ohio Secretary of State, consult with your accountant or CPA, because that’s going to indicate much more complex tax issues. I encourage anyone who is
seriously thinking about setting up a business entity, to really set up sort of a team. The team should consist of an attorney who could give you advice as
to the starting of the business and what might best fit your needs, a banker, such as Citizens’ National, who I work with quite often. You’re also going to want
to talk to an accountant about the tax ramifications. Sometimes it’s better
to be in a corporation than a Limited Liability
Company for tax reasons, and that should certainly be discussed. And finally, your insurance agent. Because the fact that you’re
trying to limit your liability does not preclude the fact
that you should have insurance, because even as your corporation grows, you don’t want those assets exposed to any liability in the future. So, certainly insurance. So, when you look at the total package of setting up a business entity, I believe it should be a team effort, and the legal aspects of it should be something that
needs to be reviewed so that you can feel comfortable
with what you’re doing. – Starting a small business requires making key financial decisions, and completing a series
of legal activities. I invite you to stop in, so we can discuss your business plan, and create a financial package specifically for your
small business needs.

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