Structure your business

  

Structure your business

Determine the best structure for your business

1. Sole proprietorship: report business activities on personal income tax returns. If you risk substantial liability in your business, consider some form of incorporation, LLC, or LLP to protect your personal assets.
   
   
2. Business partnership: Also avoid corporate double taxation and usually allow more flexibility in distributions than either a C or S corporation. Family limited partnerships (FLPs) offer many benefits: You can split income with your children and realize estate tax savings, while continuing to control assets transferred to the partnership. However, it is important to ensure that the FLP is carefully structured, as the IRS monitors FLPs closely.
   
   
3. Incorporated business: C Corporations are taxed as entities separate from their shareholders. The corporation pays taxes, and you pay taxes as an employee. Investors are taxed on the dividends they receive. Salary paid to you and other shareholders must be reasonable, or a portion of it may be reclassified as a nondeductible dividend payment. If earnings are accumulated beyond the corporation’s reasonable needs, an additional tax may be imposed on these earnings.
   
   

 

 

• S Corporations may have between 1 and 100 shareholders, which can include individuals, estates, certain trusts, and tax-exempt organizations. Income and losses are passed through to shareholders, thus avoiding the double taxation inherent in a C corporation. However, S Corporations are governed by strict rules.

• Limited Liability company: LLCs and LLPs offer pass-through taxation and limited liability. They have a flexible structure, which allows any entity to be an owner, including a corporation; investments in other entities are not limited. Special allocations of income and losses are possible.

 

 

• Full liability: Sole proprietorships and partnerships bear full liability for debts and legal issues. Sole proprietorship and partnerships can be required to pay back full amounts of debts and expenses and can be fully responsible for damage and injuries caused by employees.

 

For more information visit:

Federal Employer Identification Number (FEIN)
An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number and is used to identify a business entity. Generally, businesses need an EIN and you may apply for an EIN online. This is a free service offered by the Internal Revenue Service and you can get your EIN immediately.

• Get an employer identification number | Internal Revenue Service
• Online EIN: Frequently asked questions | Internal Revenue Service
  
  

If you hire employees, you must apply for a Federal Employer Identification Number. If your business is a sole proprietorship, a FEIN may be helpful, but is not necessary.

 

Register your business with the State of Arkansas. 

• https://www.sos.arkansas.gov/business-commercial-services-bcs

You may need to register your business with your state as well.

After registering your business and deciding on a name, you need to open a business account to manage your cash flow.

Verify Business Name: Verify the availability of the desired business name before proceeding with branding or registration. 

Check availability via: Arkansas Secretary of State’s Business & Commercial services to ensure exclusivity. 

 

Special Business Structures

Nonprofit: Nonprofits can qualify for tax-exempt status because their work benefits the public. To receive this exemption, they must apply through the IRS, which is a separate process from registering with their state. One common type of nonprofit is known as a “502(c)(3)” named after the section of the tax code that governs it.

B Corporation: Benefit corporations are for -profit businesses that pursue both financial success and a positive social or environmental mission. Their directors are allowed to consider the interests of a broad range of stakeholders, including shareholders, employees, customers, the community, and the environment.

Cooperative: To operate as a cooperative, a business must register with the state and can take the form of a special cooperative or LLC. A cooperative is owned and operated for the benefit of those who use its services, such as workers, customers, or stakeholders.