When starting a business, state guidelines must be followed regarding how the business should be licensed. Even home based businesses could face fees and penalties if it is not registered properly. Types of structures include:
Sole Proprietorship- A business owned by one person who is responsible for both the profits and the debts. This is the easiest Legal Structure to set up, but comes with the most legal liability.
Partnership- Owned by two or more people. Similar to Sole Proprietorship in that the legal liability is unlimited meaning that creditors can come after personal assets in the event of debts not being paid. A Partnership splits the legal liability. It is also easy to set up.
Corporation- When set up, the Corporation is an independent entity separate from it’s owners. It has the ability to buy, sell, or own property. It can sue and be sued. They are taxed more heavily, but the owner’s personal assets are protected. The ownership can be transferred but it takes quite a bit more money to establish a Corporation.
S Corporation-Like a Corporation but does not have the same heavy taxation. It is taxed like a Partnership but with stipulations from the IRS. These include limits on what type and the number of shareholders, what type of stock is issued, and where the company earns it’s money from.
LLC- A good middle ground for companies. It combines the lower taxation with the protection of a Corporation. There is more licensing paperwork and fees involved with LLC’s but the protection of the personal assets of the owners makes it appealing.
For my project I choose to have a Sole Proprietor Legal Structure as an Assumed Business Name. In the State of Oregon, I would not have to file this if it were under my name with something like “Enterprises” at the end. But because my company is another name altogether- “Restful Nook” I file under an Assumed Business Name.
Licenses and Taxes
For a Sole Proprietor operating under and Assumed Business Name, in my city, I must be licensed even with a home-based Affiliate Blog. Taxes are filed Federally through a 1040 Schedule C and the same through the State of Oregon. I am responsible for the taxes on my earned income. Because I will have the business set up, I will be able to claim things on my home based business, such as a portion of my home (if it is set up to qualify), and percentages of things like cell phone use, internet, related conferences, and any other expenses incurred for my business.