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Dining

Establishing an online business in the US – Corporations

By | Dining | One Comment

Corporations – the traditional business

Corporations are the prime type of entity used in publicly traded companies, larger entities, and when the owners want a separate taxable entity from the individuals. A corporation is set up by filing a certificate of incorporation or articles of incorporation in the state of choice. In addition to getting a separate tax identification number, the corporation should have bylaws detailing the officers, the operation of the business and the amount of shares and any particular rights in different classes of shares. Liberation files a separate tax return and pays income tax on the income earned to both the state and federal governments. After pays taxes if it wants to distribute some of the profit to the owners, these distributions are called dividends and are taxed in the income of the shareholders. This can lead to the famous “double taxation” where the corporation is taxed and then the same income is taxed again at the shareholder level.

In order to avoid double taxation problem, there is an option to elect “S” status for a corporation. One of the core requirements to be an S corporation is that all of the shareholders must be either US citizens or permanent US residents parens green card holders on friends. This limits the option for most foreign owned corporations to being a C corporation only. Nevertheless, if an S corporation can be elected then the corporation files a tax return is usually taxed at the shareholder level rather than the corporate level. This eliminates the double tax issue but also there are number of restrictions as to the amount of shareholders and also the classes of stock. Unlike a C corporation which can have many classes of stock with different types of interest, an S corporation can have only one class of stock. It has a 2nd class of stock must simply be a nonvoting version of the first class of stock but otherwise have the same economic rights. This leads to the problem of “a shareholder being a shareholder. Quote that means a person owns one share of stock it is the same as another one share of stock and not different sets of rights if it is an S corporation. If it were irregular, or C corporation, shares can be set up to be preferred shares that may have rights to income, nonvoting shares, voting shares and other kinds of restrictions and benefits.

An advantage to non-US residents and citizens of having a corporation, particularly a C Corporation, is that the corporation is taxed not the shareholders. This means it blocks taxation of the individual shareholders on the income earned until such time as it is distributed as a dividend. It therefore allows a buildup of capital in the US entity.

There are other limited liability entities such as a limited partnership, but these are much less frequently used and are more complex to establish and operate.

Establishing an online business in the US – Partnerships

By | Dining, Food for thought | One Comment

Basic Entities in the United States – Partnerships

Partnerships are similar to a sole proprietorship in that the individuals have personal liability. This means that each partner is liable for their own actions and the actions of the other partners. That is a big negative of the partnership versus a limited liability entity.

For tax purposes, partnerships are generally disregarded and the attributes of income and deductions are passed through to the individuals. That is why they are referred to as “pass-through” entities The partnership will file a federal partnership tax return as well state all partnership tax returns, but it usually does not have any taxable income at the partnership level. Rather, the taxable income is solely pass-through to the partners. Partnerships can also have some interesting tax issues. For example if people simply contribute cash to the partnership for their interest, it is easy. But if one person contributes cash and another person contributes assets, such as machinery and equipment or real estate, the basis of the asset in the partnership is dependent upon the basis in the individual member. This can present some interesting issues and differences between members and can result in different tax treatments for similar distributions.

Unfortunately, the personal liability of the individual partners for their own actions and the action of the other partners makes this undesirable for the operation of most businesses.In order to limit the liability of the owner of the business, it would be necessary to set up a limited liability entity. The two most popular entities in the United States are corporations and limited liability companies. Limited liability companies are a US creation and do not exist in most other countries. Corporations or other limited liability entities similar to that are available in many countries.

Establishing an Online Business in the US

By | Dining, Food for thought | No Comments

Basic Entities in the United States.

Anyone, even a non-US citizen and non-US resident can establish a sole proprietorship. This is simply operating the business under your own name. You have personal liability for the actions of any employees or any actions taken in the name of the business. The business can also have a trade name also known as a ” doing business as” name which is typically filed with the state. The advantage of a sole proprietorship is simplicity. There is not much you need to do to set up the business other than obtaining a tax identification number and possibly a trade name certificate from the state. Depending on how the services are rendered are rendered, there may be some licenses that are required but for most online businesses that it is not necessary.

Another advantage of the sole proprietorship is that it is taxed on the individual tax return. There is no double taxation. The sole proprietorship is simply taxed at the individual level for both federal and state purposes. Nevertheless, a significant disadvantage of a sole proprietorship is that if you want to add an additional owner to the business, it gets converted into a partnership. This requires a change in entity, a change in taxation and other issues.