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Company
Form
Discussing your choices
for the form of your company with an attorney is strongly
recommended. The most common company forms are:
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Sole
Proprietor. This legal structure is very common. It
is very easy to setup, and there are fewer requirements to
file applications with the government compared to other forms
of companies. You should check with your local town or city
government, and county, for business license requirements, and
zoning requirements as well. As a sole proprietor you own the
business. Indeed, you are the business whether you
have employees or not. Except for what you delegate to
employees, you have full control and total authority for the
business. Of course, you are then totally responsible for
anything that happens to the business, and you cannot avert
liability. The profit and loss from your business is typically
passed along to your personal tax returns, (see IRS Schedule C
for federal taxation). The business does not file its own
"return" but the net profit or loss is shown on your
personal tax return. If you have no employees, you probably do
not need a federal tax identification number for the business.
Instead, your social security number associated with your
personal tax return serves as an identification number
associated with your business venture. Before you hire
employees, be sure to file for an Employer Identification
Number (EIN). If you reside in a community property state,
your spouse is likely to be deemed as having a half interest
in the business. Consult with your attorney for the local,
state and federal regulations that apply to your sole
proprietor business. Make sure you understand that the primary
disadvantage of a sole proprietorship is the owner's unlimited
liability in the event of damages, lawsuit, or other financial
losses. You do face the risk of a pet being hurt, and in some
businesses, pets have died of natural causes at the pet
groomer. Ask your attorney to make it clear what you face
losing as a sole proprietorship.
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Partnership.
Two or more owners form a partnership. It is
essentially a sole proprietorship with two or more owners.
Partners share authority, control, responsibility, liability
and profits or losses. The basis of their sharing is either
equal or not equal. Each is liable for the actions of the
other within the business. It is very important for a
partnership to be made by a formal agreement with the
assistance of an attorney defining the contributions,
authority, liability, control and remuneration for each
partner. Typically profits and losses from the business are
passed along to each partner for their personal returns,
again, you should seek legal and accounting assistance in this
matter. Partnerships must apply for federal identification
numbers and file business returns in order to report the
profit and loss of each partner. Why have a partnership? You
have more resources than just you. A partner contributes
knowledge, skills, good judgment and timely assistance.
However, not all partnerships work out well. They require
joint trust, commitment and concern for the business and the
other partners. Is this possible for you? Are you comfortable
with possibly being held liable for your partner's activities?
In fact, it is sometimes possible to be held liable for a
partner's activities outside the business partnership.
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Corporation.
The corporation is its own being, a living being separate from
its owners. A corporation requires a charter from its resident
state when formed. Owners are the "stockholders." In
return for your financial investment of capital into the
corporation, you are given stock. In return, you can also be
given dividends and a portion of the profits from the
corporation. You can also be paid wages issued by the
corporation, as an "employee." Stockholders elect a
board of directors to guide the corporation and protect its
interests. Officers are elected by the directors to run the
day-to-day business. Officers and directors are responsible to
the stockholders. In many states, a corporation can be formed
and operated by one person like you. We strongly recommend
legal counsel when forming a corporation. The corporation can
dramatically reduce your liability for the business, including
debts, but there are important exceptions. Stockholder
"owners" are liable generally to the extent of the
investment of stock, should the corporation fail. Officers and
directors are responsible for their actions, and can be fired
and re-elected, but generally, their liability doesn't to
their personal assets (but again, there are exceptions). To
incorporate not only requires counsel, but special filings and
additional paperwork on an ongoing basis. The cost of
incorporation varies by state, and the mid-range cost is
several hundred dollars. Don't overlook the ongoing functions
of a corporation to hold a minimum of an annual stockholders'
meeting, elect directors and officers, maintain a
"corporate minutes" book with the involvement of the
directors and stockholders as appropriate. Be sure you
understand the taxation procedures for a corporation. The
corporation pays corporate income taxes on its profits, and
then distributes dividends to its stockholders, and the
stockholders are liable for personal taxes on dividends they
receive. Remember, the corporation pays wages to its
employees, and you as a manager and groomer will likely earn
wages and be paid in the form of paycheck with payroll taxes
deducted. At the end of the year, the corporation will provide
you with a W-2 statement of earnings for those wages, along
with other forms of remuneration the corporation may have paid
you. Again, be sure you clearly understand the workings and
requirements of a corporation with tax counsel including an
attorney and Certified Public Accountant. In fact, we have
worked with CPA's who were also attorneys, very convenient!
Are all corporations the same? No. Your counsel can explain
the differences between a "S" and "C"
corporation.
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There are additional
options, and like the corporation they are more involved than
sole proprietorships or partnerships. For example, the "LLC"
or "LLP" company form has gained in popularity in
the 1990's. Again, you will require professional assistance
with alternate company forms. Make an informed decision!
We're not done yet,
let's go onto the next part of strategizing your legal and
insurance plan on the next
page.
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