How to choose the right form for your online business

I've been reading a lot on the discussion boards and I've noticed a lot of confusion about what form your business should take. So I thought I'd post this to see if I can help.

You want to set up your online business and you're wondering where to start. There are so many choices, you've heard from your brother that you need an S-Corporation, you've heard from someone else that you should just work as a sole proprietorship, and what the heck is an LLC?What in the world is everyone talking about?

Well, you first need to understand that not everyone wants to file as a company, corporation or partnership for their business. If you don't file, you will be classified as a sole proprietorship. If you want to be a sole proprietorship, generally, if you're not using your own name for your business, you should file a DBA with the Secretary of State and you're ready to go. Though this might be a good point to mention that you should always (with any business form) check with your county or city to make sure that you don't need a business license to operate a business in your location...

So that sounds easy. Why doesn't everyone do it? There's a really simple answer to that. Because it offers you NO liability protection at all. If you're sued and the person suing you wins their suit, or your business goes bankrupt and you owe your vendors money, you're on the hook. They can attach your personal bank accounts, your assets and, in most locations, even your home to satisfy their judgement.

So, what do people do to protect themselves? They form companies or corporations. There are three basic types, the C-Corporation, the S-Corporation and the Limited Liability Company ("LLC"). Generally, small businesses take one of two forms, either an S-Corp or an LLC for the flow through taxation (in an S-Corp or LLC, you only get taxed once on the proceeds of your company, in a C-Corp, you get taxed at the corporate level and again at the personal level for any money withdrawn).

Filing for an LLC or S-Corp creates a separate entity that runs your business. It allows you to protect your personal assets from your business failures (i.e., bankruptcy or lawsuits).The difference between the two is relatively insignificant (there are some tax differences, but not much that affects businesses that are starting out, which I'll address in another post at a later date). The most common reason that people choose an LLC over an S-Corp is that, frankly, it's cheaper to file and more flexible.

I hope this answers some of the questions that you might have about business forms. If you have more questions, feel free to contact me directly through the contact form at www.ebusinesslawgroup.com