The biggest difference is the potential personal liability of the owners. If you are the owner of a corporation and the business is sued, your personal assets (usually) are not at risk. If you are a partner in a partnership, your personal assets are at risk if the business is sued. In fact, this personal liability in a partnership extends to decisions made by your partners. If the business gets sued for a debt incurred by your partner or for a bad decision made by your partner, your personal assets still are at risk.

A sole proprietorship is owned and operated by one person. While a corporation can be owned by one person, there may be more people involved in the ownership and operation of the business. The biggest difference again comes down to personal liability. The owner of a sole proprietorship is personally responsible for the debts of the business. As discussed above, this generally is not the case with a corporation.

LLC stands for limited liability company. For the most part, a corporation and LLC are treated the same. For example, the same discussion above about liability of the owner of the corporation also applies to the LLC. The LLC is a bit less expensive to form. The most important difference is that it is a bit easier for a corporation to raise capital from investors although that difference is becoming less important as investors become more comfortable with the LLC.

For both the LLC and corporation, the minimum amount of owners is one person. The same person can own the business, run the business and be named as the sole officer, director, or manager of the business. Do not let an attorney tell you that he or she must be named in one of these roles.

It all starts with forms that must be filed at the state level to create the entity. These forms should be filed in the state where you want to form the company. There are some filing fees but they are a few hundred dollars. Once the company is formed, you must respect the formalities of the company by not mingling your own personal funds with those of the company. Unfortunately if your personal funds are mixed with your business funds, you may lose the benefit of forming the company because your personal assets could be at risk if the company gets sued. Commingling funds erases the distinction between corporate and personal assets

There is a great deal of confusion about S corporations. The S corporation is formed the same way as any other corporation. What makes an S corporation different is the way it is taxed. In a regular corporation, the corporation pays tax on any income earned. With the S corporation, the tax is paid by the owners of the corporation, instead of through the corporation itself. That is why the S corporation is called a “pass-through” entity–the income earned by the corporation passes through to the owners. After the corporation is formed, the owners must file an election to be treated as an S corporation on a 2553 Tax Form. In fact, the owners of a LLC can elect to be taxed as an S corporation.

There are many states where a company can operate without paying income tax. However, I generally do not recommend forming a company in these states unless you plan to do business there. For example, if you are doing business in Pennsylvania, you will pay tax in Pennsylvania even if you form your company in a no-tax state. In addition, if you form your company in another state, you will be required to maintain an office in that state, at a cost to your company. In most cases, it is easier and less expensive to form your company where you live and work.

It’s true that you are not required to make certain payments for independent contractors that must be made for employees. For example, you are not required to pay certain employment taxes, workers’ compensation insurance, and unemployment insurance. In addition, independent contractors are not required to receive the same benefits as employees. But you cannot call someone an independent contractor for the sole purpose of saving money. There is a complicated test applied for these purposes which looks at the degree of control you have over the worker. If you have control over a worker and you incorrectly classify an employee as an independent contractor, you can be held liable for the unpaid employment taxes, plus a penalty.

When you form a corporation or a limited liability corporation, you must choose the official name for the company. Think of that paper as the birth certificate for the company and the company’s legal name is on that certificate. A fictitious name is any name other than the legal name of your business. It sometimes is called a trade name or “doing business as” name. For example, my corporation is called “Law Office of Howard M. Soloman, PC” where the PC stands for Professional Corporation. This is my corporation’s official name. If I decide to do business using the name “Small Business Clinic,” that is a fictitious name. Most states require you to register the fictitious name but it is important to keep in mind that a fictitious name registration does not prevent someone else from using the same name the same way that a corporate filing or LLC filing would protect the legal name of the business. Banks also may require a fictitious name registration if you try to open a bank account using the fictitious name.

A business plan takes many forms. Typically it is a written document that you can use as a sales pitch for your new or expanding business when you are trying to get financing. However, business owners also use business plans as strategic planning documents. Business plans typically include sections about the history of the company, the people who will be running the company, the target market, the product or service, sales and promotional plans, and financial information. Sample business plans are present to use a guide for your own plan. Only you can decide whether you need to put together a formal business plan.

Yes. A taxpayer Identification Number (TIN) (also called an Employer Identification Number, or EIN) is a nine-digit number that the IRS assigns to companies. Although it is possible for a sole proprietor who has no employees to use his or her own social security number for the business, it is typically easier to get a TIN to avoid all that confusion. All other types of companies are required to obtain a TIN.