Different Types – Business Structures
How to Start in an Online Business
Support Post for Phase 2 – Step 1
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Deciding on Your Business Structure
Will your Online Affiliate Marketing Business be a:
There is no real right or wrong here. It is all personal preference, although some are definitely more appropriate for an Online Affiliate Marketing Business. I will discuss each one briefly, and some of the requirements involved. Whichever you are leaning toward, I suggest that you do some additional research before deciding, in order to make sure that you fully understand what it involves. You can make your best decision then.
A Sole-Proprietorship is the most common structure to use for an Online Affiliate Marketing Business. It is where you and you alone are registered as the business owner and are solely and completely responsible for all things business related. It is the easiest to set up, since it is not governed by as many extensive rules and regulations as the other structures.
However, you must be careful to do everything above board, since your personal assets are not protected in this type of structure. Do not use photos on your site that are copyright protected, do not give out legal or medical advice without the proper credentials, etc. Should you do anything wrong and get sued for any reason, you could lose everything.
You should be operating your business appropriately anyway, so this really should not be a big concern. Doing things correctly is always the best way to operate any business.
Here are some of the guidelines when setting up a Sole-Proprietorship:
- 1. Choose a Business Name
The easiest way to set up a Sole-Proprietor is to merely use your own name as your business name, and have no employees. You will set up all of your Affiliate Programs that you sign up for with your Soc. Sec. Number, instead of needing a business EIN (employer identification number). They will provide you with 1099s at the end of the year which are like W-2s for self-employed individuals.
You will still be able to use the Federal Schedule C to file your business income and deductions in addition to your personal Federal Income Tax papers, allowing you to benefit from various deductions, such as, home office expenses, equipment and supplies write-offs, etc.
Your Business Name does not have to be the same name as your website name or Domain Name. You can own several Domain Names and operate several sites, all under the same Business Name.
- 2. Register a DBA if Appropriate
Most states require you to pay a fee when applying for and setting up what is known as a DBA (Doing Business As). As a Sole-Proprietor, you may use your own given name (no DBA needed) or may use an assumed business name or trade name. If you do not use your own given name, like: Tom Smith – Affiliate Marketer, you might use something like, Tom Smith – DBA/ Tom’s Tackle Box.
If you use a business name that is different from your legal name, some States requires you to file a certificate of assumed business name for your DBA. To file your assumed business name, you have to fill out the assumed business name certificate available from the county clerk’s office in the county where your business is located. There is usually a charge for the filing fee. The next step is to publish the assumed business name in a local newspaper for 3 consecutive weeks. The publisher will provide you with a publisher’s certificate that you need to file with the county clerk in order to finalize the process. Check with your State for their requirements.
- 3. File for an EIN if Appropriate
Sole-Proprietors who wish to have employees are required to obtain an Employer Identification Number, or EIN from the Federal Government. This is a nine-digit number issued by the IRS to keep track of businesses. All businesses with employees are required to report wages to the IRS using their EIN. Registering for an EIN can be done online at the IRS website: irs.gov There is no cost in order to do this.
Even though Sole-Proprietors without employees are not required to have an EIN, you may want to obtain one anyway. Some banks require one to open a business bank account, which can also reduce the risk of identity theft. Check with your bank to see what their requirements are.
When it comes to Partnerships, I would caution you. It can sometimes seem like a great idea in the beginning, but best friends can become bitter enemies quite easily. Really make sure that you have thought this completely through before embarking on this time of venture. Always play out the worst scenarios in your mind.
A Partnership is when two or more people operate a business together. You should create a well-thought-out, written agreement; one that spells everything out clearly and that all partners are completely comfortable with.
The stakes are quite high, since the partnership agreement will stipulate how the business is managed and each partner’s financial stake in the operation. If you and your partner agree on a 50/50 split of the profit and it’s written that way into the agreement, you may have little or no recourse if your partner ends up doing just 20 percent of the work and the work load was not clearly outlined in the agreement.
As with most business structures, you will need to choose and register a business name and obtain all necessary business licenses and permits. If you are thinking of starting a partnership, below is a checklist of steps to take before you open for business. Keep in mind that your partnership’s start-up requirements might vary from the list below, depending on the specific type of business you are in, and where your business is located:
- 1. Decide on a Business Name
When choosing a name for your partnership, you may decide to use the names of the partners (as many law firms do, for example) or go with something more descriptive of the business or you may choose a completely unrelated DBA.
- 2. Search Availability
Make sure the chosen business name of your partnership is in fact available before you go any further. Also, look for similarity to existing names (which can cause confusion or present image problems).
- 3. Register your Partnership Name
Once you’ve chosen your name and have verified that it is available, if it is a DBA, you will need to register it with your State, as well as, possibly your County and Town.
- 4. Create and Sign a Written Partnership Agreement
Create a detailed and well-thought-out agreement for all partners to sign. The agreement will include the name of your business, the contributions of each partner (duties and responsibilities), how profit and loss will be allocated, the authority and decision-making powers of the partners, and other important terms. Be sure to have your document notarized, and if required, register it with your Secretary of State.
- 5. Have Your Agreement Reviewed
It is best to have your agreement reviewed by a professional Small Business Attorney before filing it, just to make sure that all of your bases have been covered.
- 6. Obtain Business Licenses and Permits
Make sure that you apply for any needed licenses and permits, for Federal, State, County, and Local Municipality.
To incorporate your business as a C Corporation, S Corporation or LLC, you will need to either create Articles of Incorporation (for Corporations) or Articles of Organization (for LLCs). These must be filed with the appropriate State Agency. Incorporating helps protect personal assets.
A Corporation is a separate legal entity set up under State Law that protects owners (shareholders) assets from creditor claims. Incorporating your business automatically makes you a regular, or “C” Corporation. A C Corporation (or C-Corp) is a separate taxpayer, with income and expenses taxed to the Corporation and not the owners. If corporate profits are then distributed to owners as dividends, owners must pay personal income tax on the distribution, creating “double taxation” (profits are taxed first at the corporate level and again at the personal level as dividends). Many small businesses do not opt for C-Corp because of this tax feature.
Once you are Incorporated, you can elect S Corporation (S-Corp) status by filing a form with the IRS and with your State, if applicable, so that profits, losses and other tax items pass through the Corporation to you and are reported on your personal tax return (the S-Corp (itself), does not pay tax).
Another business type that is formed under State Law and gives you personal liability protection is the LLC. Tax-wise, an LLC is similar to an S Corporation (or S-Corp), with business income and expenses reported on your personal tax return. If you are the only owner of an LLC, you are viewed as a “disregarded” entity. This means you report the LLC’s income and expenses on Schedule C of Form 1040 – the same schedule used by Sole Proprietors.
You can further research business structures at the following websites:
Acquire Any Needed Business Licenses
Depending on your selected business structure, you may need to obtain Business Licenses in order to conduct your business, even if it is out of your own home. Check with your Town, County, State, and Federal Agencies for their Regulations on any required Licenses. Apply for those, pay the necessary fees, and get yourself completely legal.
Please leave any Comments that you have or ask a Question in the Comments section below.
Once you have decided on your Business Structure, please return to my Post: How to Set Up a Home Business – Phase 2 – Step 1.