Business Services: Starting A Business
Things to Consider
- Some local entities, such as cities, require a business license.
- Registration of an assumed business name or other business entity only assures you that no one else in the state has registered that exact name in the state. If you hope to do business in other states or use a name as a brand, there are other considerations. There are steps you can take so that you have more options and opportunities as the business continues.
- Particularly with a home-based business, you should be aware that zoning laws may restrict your ability to do business.
- While information may be available from the state, it may not include everything needed to protect yourself or the business.
Forms of business
- A single person who starts a business is a sole proprietorship. A sole proprietorship can operate under the name of the person or an assumed business name. Unless the name of the business includes the full name of the owner, the business name is required to register with the state.
- A sole proprietor is personally liable (responsible) for the debts of the business.
- A sole proprietor generally files Schedule C for his or her tax return.
- A sole proprietor can use his or her Social Security number for the business, but the proprietor may wish to obtain an Employer Identification Number (“EIN”) from the IRS to protect his or her personal information.
- Two (or more) people who start a business together are a partnership. A partnership can have a written partnership agreement, which specifies the rights and responsibilities of each of the partners. If there is no written partnership agreement, or if the partnership agreement is silent on a particular point, the Oregon statutes on partnership control the parties’ rights and responsibilities.
- A partnership can use the names of the partners or an assumed business name. Unless the name of the business includes the names of each of the partners, the business name is required to register with the state.
- Normally, each partner is liable for the full extent of the partnership’s debts, although contribution from the other partners may be obtained through legal proceedings.
- A partnership generally files a K-1 (an informational return) with the IRS to apportion income and expenses to each partner.
- A limited partnership includes at least one general partner and one or more limited partners.
- General partners run the company and are personally liable for the debts of the organization. The liability of limited partners is limited to the amount of the limited partner’s contribution to the partnership. A limited partnership must register with the state.
- A limited partnership must include the words “Limited Partnership” in its name.
Limited Liability Entity
- A limited liability company is an unincorporated association with one or more members. Limited liability companies must register with the state.
- A limited liability company must include “Limited Liability Company” or “L.L.C.” or “LLC” in its name.
- An LLC is managed by a manager or by its members. If the LLC is to be managed by a manager, this must be stated in the articles of organization.
- LLCs are run according to operating agreements, which may be written or oral. Like most contracts, proof of what is included in a oral operating agreement may be difficult.
- An LLC may be unable to continue after the death or exit of a member.
- A limited liability partnership is an association of two or people which renders specific professional services. It includes at least one general partner and one or more limited partners.
- A limited liability partnership must register with the state.
- A limited partnership must include the words “Limited Liability Partnership” or “L.L.P.” or “LLP” in its name.
- A corporation is a separate legal entity. A corporation has officers who run the day to day operations of the corporation, a board of directors which oversees the company’s operations and shareholders who are the owners of the corporation.
- The name of a corporation must include the words “Corporation”, “Company”, “Corp.” or “Co.”.
- A corporation must register with the state.
- If the corporation is properly funded and operated, the shareholders are liable for the corporation’s debts only to the extent of their capital contributions. If a corporation is undercapitalized or fails to follow the required corporate formalities, third parties may try to “pierce the corporate veil” and, if successful, the shareholders may be liable for the corporation’s debts.
- A corporation may be taxed separately at the corporate rate (this is known as a “C corporation”) or its income may be passed through to the individual shareholders and taxed at each individual’s rate (this is known as a “Subchapter S corporation”). Subchapter S status must be elected within specific time limits. Not all corporations can qualify as Subchapter S corporations.
- While a particular type of business entity may in general protect its owners from liability for the business’s obligations, this protection does not apply in the event a person signs a guarantee. Some banks are using forms which provide automatic guarantees by anyone signing a particular document. BE AWARE OF WHAT YOU ARE SIGNING! It is best to have an attorney look over any documents BEFORE you sign them so that you can be fully aware of what you are getting yourself into.
Meeting and minutes
- At a minimum, annual meetings of shareholders and directors are required. Written minutes should be kept of the meetings.
- Personal property tax
- Some counties require a personal property tax return to be filed.
- County income tax
- Some counties impose a separate income tax on business income.
- Other local entities, such as Trimet in the Portland metropolitan area, impose taxes on business income.
- Self-employment tax
- If you have income from an unincorporated business entity, you are required to pay self-employment tax on that income (subject to certain limitations). This is basically equivalent to twice the amount of Social Security and Medicare tax (FICA) deducted from your paycheck as an employee elsewhere.
- Personal property tax
This information is intended to inform and not to advise or apply to any specific situation.
© 2014 Veronica M. Schnidrig