updated - December 6, 2021 Monday EST
There are all manner of business types to support all manner of businesses. If you wish to go into business for yourself, you are sure to find a structure that well suits what it is you want to do. The thing you want to avoid is going into business without a proper business structure. It is possible to do it. And you can even get away with it for a long time. But at the end of the day, it is seldom worth it.
You could probably get away with running a restaurant out of your house. You could make decadent baked goods and have them delivered all over the world. The fact that you might be breaking international law is just one reason why you shouldn't do it without a proper business structure.
Choosing the right structure can be difficult. There are not a lot of obvious places to look for information about regulatory compliance for your kid's lemonade stand at the end of the block. Can you set up that lemonade stand just anywhere? Should your 10 year old incorporate? Can they? If other kids work for them, is an employer ID required? The answers to these questions are not as obvious as they seem. Here are a few things you need to know about choosing a business structure:
Workers Still Have Rights
No matter how small your small business is, your workers have rights. If you have employees, you will need an employer ID number. If you don't have one, you can quickly and easily apply for an EIN online. If you are not sure if you need one, these are some of the business types that require it:
● Sole proprietorship
Regulations differ by locality.
Your business might not have to provide insurance for your workers depending on the size of your company and local laws. The details are always in play. That said, you still bear liability if someone is injured while working for you. If a courier slips and falls on a wet floor in your office where there was no sign, you are most likely on the hook for the injury even though they were not a direct employee of your company. So while you can limit your liability, you cannot completely free yourself of it. In all circumstances, workers have rights. Choose the right business structure to protect yourself to the extent possible.
Business Structure Breeds Consumer Trust
If you want to obtain good customer reviews, you need to do the things that breed consumer trust. Having a formal structure makes you look more like a "real" business. That will give consumers the confidence to try your service. They will also be more inclined to give you the benefit of the doubt if something goes wrong.
The structure of choice for many small-business owners is LLC. It stands for limited liability corporation. It has cachet that is similar to an Inc. with only a fraction of the liability. When people see that you have put forth an effort to be a proper business under proper regulatory supervision, they can feel more confident about doing business with you for the first time. It is very hard to get someone over that trust barrier when you are clearly taking shortcuts that "real" businesses don't take. If you want to be seen as a proper establishment, you need a proper business structure.
The Inevitability of Taxes
Whether or not you declare your business to the IRS, they have a way of catching up with you. At some point, you are going to have to explain how it is that you could afford that boat while being unemployed. There are strategies for handling an audit of your tax returns. The best way to do it is to have nothing to hide. You can forget about leniency if you are obviously trying to cheat the system. Refusing to declare your business could be construed as a way to conceal your true income. Even if you are an independent contractor, you might benefit from having a business structure if only for tax purposes.
Whatever business structure you choose, remember that workers still have rights, consumers will find you more credible, and your tax situation will be much clearer
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