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Incorporating a Business
In the United States, Seattle businesses are registered as legal entities (sole proprietors, partnerships, or corporations). You do not have to incorporate and may wish to set up your business based on one of the other models:
- A sole proprietorship is a business entity that legally has no separate existence from its owner, does not pay corporate taxes, and has the least amount of government regulation. However, the assets of the owner (homes, retirement accounts, personal bank accounts) are at risk if the business is sued or goes into default.
- A partnership (general, limited, and limited liability partnership) is a business entity formed by two or more individuals. A general partnership is similar to a sole proprietorship, while a limited or limited liability partnership offers a degree of protection of the partners' personal assets and business liabilities. Both a sole proprietorship and partnership are dissolved if an owner dies or leaves the business.
- A corporation is a business entity that is separate from its owners and is considered by the law as a separate and 'fictitious' person. Its owners are shareholders, meaning they own a certain percentage of the company through a share or stock. A corporation may be (but is not limited to) a business, nonprofit organization, social club, or a city government.
- A limited liability company (LLC) is a business entity offering limited liability to its owners. It is similar to a corporation and is suitable for smaller companies with a limited number of owners. Unlike a regular corporation, a limited liability company with one member may be treated as a disregarded entity, which means that income and expenses are shown on the owner's personal tax return. The formation of an LLC in most states is similar to a corporation.
The main advantage of a corporation is the liability protection it provides its shareholders, that it is liable for its own debts and can only be held liable to the extent of the corporation's assets. The assets of a shareholder are personal assets that cannot be reached by corporate creditors in most circumstances. Unlike sole proprietorships and partnerships, corporations do not dissolve because of the death or resignation of any owners.
To form a corporation, articles of incorporation must be filed with the state where the corporation is being organized. A corporation can be incorporated in any state, and it does not have to be incorporated in the state in which it is going to do business. However, corporations must register as foreign corporations in any states in which they do business outside of the state in which they are incorporated. A corporation must also register with the Internal Revenue Service (IRS). Lawyers and accountants can assist in the legalities and documentation needed to form a corporation.
For small businesses, you can visit Business.gov for a guide to starting a small business. You may also wish to view further information on starting a business.
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