| Your choice of whether your business
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| | even worse for partnerships. As a
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| should be a proprietorship, a partnership
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| | partner, you are responsible not only for
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| or a corporation can be important for
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| | your own business debts, but for those of
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| many reasons. Each has advantages and
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| | your partners as well. Should they incur
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| disadvantages depending on the type of
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| | debts or legal judgments against the
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| activity you are engaged in.
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| | business, you could be held legally
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| Part of keeping your home-based business
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| | responsible for them. Disputes among
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| legal involves choosing the legal
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| | partners can be a problem, too.
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| structure for it: sole proprietorship,
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| | Unless you and your partners see eye to
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| partnership, or corporation. Aside from
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| | eye on how the business should be run and
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| being necessary for government reporting
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| | what it should accomplish, you are in for
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| and tax purposes, this can enable your
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| | trouble.
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| business to operate more efficiently.
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| | However, a partnership is generally the
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| Since each legal form has its own unique
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| | least advisable way to go. It requires
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| characteristics, your goal is to choose
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| | filing a separate partnership tax return,
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| the form that works best for you.
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| | does not carry liability protection for
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| Sole Proprietorship A business owned by
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| | general partners, and can lead into legal
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| one person, who is entitled to all of its
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| | and personal disputes. A corporate form
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| profits and responsible for all of its
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| | of ownership is generally recognized as
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| debts, is considered a sole
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| | preferable over partnership, because it
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| proprietorship. This legal form is the
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| | can serve the same purpose while offering
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| simplest, providing maximum control and
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| | a cleaner and better protected structure
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| minimum government interference.
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| | for the owners.
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| Currently used by more than 75 percent of
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| | Corporation A corporation differs from
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| all businesses, it is often the suggested
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| | the other legal forms of business in that
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| way for a new business that does not
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| | the law regards it as an artificial being
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| carry great personal liability threats.
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| | possessing the same rights and
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| The owner simply needs to secure the
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| | responsibilities as a person. This means
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| necessary licenses, tax identification
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| | that, unlike sole proprietorships or
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| numbers, and certifications in his or her
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| | partnerships, it has an existence
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| name, and you are now in business! The
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| | separate from its owners. It has all the
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| main advantages that differentiate the
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| | legal rights of an individual in regards
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| sole proprietorship from the other legal
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| | to conducting commercial activity -- it
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| forms are (1) the ease with which it can
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| | can sue, be sued, own property, sell
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| be started, (2) the owner's freedom to
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| | property, and sell the rights of
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| make decisions, and (3) the distribution
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| | ownership in the form of exchanging stock
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| of profits (owner takes all).
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| | for money.
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| Still, the sole proprietorship is not
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| | As a result, the corporation offers some
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| without disadvantages, the most serious
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| | unique advantages. These include (1)
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| of which is its unlimited liability. As a
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| | limited liability: owners are not
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| sole proprietor, you are responsible for
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| | personally responsible for the debts of
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| all business debts. Should these exceed
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| | the business, (2) the ability to raise
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| the assets of your business, your
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| | capital by selling shares of stock, and
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| creditors can claim your personal
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| | (3) easy transfer of ownership from one
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| assets--home, automobile, savings
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| | individual to another. Plus, unlike the
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| account, and investments. Sole
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| | sole proprietorship and partnership, the
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| proprietorships also tend to have more
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| | corporation has "unlimited life" and thus
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| difficulty obtaining capital and holding
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| | the potential to outlive its original
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| on to key employees. This stems from the
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| | owners.
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| fact that sole proprietorships generally
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| | The main disadvantage of the corporate
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| have fewer resources and offer less
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| | form can be summed up in two words:
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| opportunity for job advancement. Thus,
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| | taxation and complexity. In what amounts
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| anyone who chooses the sole
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| | to double taxation, you must pay taxes on
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| proprietorship should be prepared to be a
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| | both the income the corporation earns and
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| generalist, performing a variety of
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| | the income you earn as an individual.
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| functions, from accounting to
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| | Along with this, corporations are
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| advertising.
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| | required to pay an annual tax on all
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| Partnership A business owned by two or
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| | outstanding shares of stock. Given its
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| more people, who agree to share in its
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| | complexity, a corporation is both more
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| profits, is considered a partnership.
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| | difficult and more expensive to start
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| Like the sole proprietorship, it is easy
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| | than are the sole proprietorship and the
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| to start and the red tape involved is
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| | partnership. In order to form a
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| usually minimal.
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| | corporation, you must be granted a
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| The tax structure is the same as
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| | charter by the state in which your
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| proprietorship except in the profits and
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| | home-based business is located. For a
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| losses of the partnership are divided by
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| | small business the cost of incorporating
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| an agreed percentage by the partners.
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| | usually ranges from $500 to $1,500. This
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| The main advantages of the partnership
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| | includes the costs for legal assistance
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| form are that the business can (1) draw
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| | in drawing up your charter, state
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| on the skills and abilities of each
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| | incorporation fees, and the purchase of
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| partner, (2) offer employees the
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| | record books and stock certificates. And,
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| opportunity to become partners, and (3)
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| | since corporations are subject to closer
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| utilize the partners' combined financial
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| | regulation by the government, the owners
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| resources.
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| | must bear the ongoing cost of preparing
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| However, for your own protection, it is
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| | and filing state and federal reports.
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| advisable to have a written partnership
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| | S Corporation If you are interested in
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| agreement that will spell out the
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| | forming a corporation, but hesitate to do
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| specifics of the agreement. This should
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| | so because of the double taxation, there
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| state (1) each partner's rights and
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| | is a way to avoid it. You can do this by
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| responsibilities, (2) the amount of
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| | making your business an S corporation.
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| capital each partner is investing in the
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| | The Internal Revenue Service permits this
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| business, (3) the distribution of
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| | type of corporation to be taxed as a
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| profits, (4) what happens if a partner
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| | partnership rather than a corporation.
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| joins or leaves the business, and (5) how
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| | However, in order to qualify for S
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| the assets are to be divided if the
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| | status, your business must meet the
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| business is discontinued. Things have a
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| | specific requirements set forth by the
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| way of changing and people forgetting
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| | IRS. These include limits on (1) the
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| over time, so it is essential that there
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| | number and type of shareholders in the
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| be a signed document that all abide by.
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| | business, (2) the stock that is issued,
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| Partnerships also have their share of
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| | (3) the corporation's sources of
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| disadvantages. The unlimited liability
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| | revenues.
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| that applies to sole proprietorships is
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