Home Business

This means that

• All partners are willing to disclose their current financial positions and ability to contribute to the partnership financially.

• All partners are willing to fully disclose the skills and experience they bring to the partnership, as well as any potential liability.

• All partners are willing to provide other partners with a credit report, background check, or other documentation supporting their viability to be involved in the business.

• All partners are willing to formalize who does what, when they do it, and why, in a partnership agreement. Why is this so important? Business partners generally all agree to pay the debts of the partnership. So, if one partner runs up debt and disappears, the remaining partner(s) is left repairing the financial situation and the reputation of the business. Having a partner is a great way to split the risk and the work, but it can be a headache if you don’t know the other partner(s) well.

A corporation is an entity that is completely separate from any person. In fact, corporations file their own taxes and have many rights and obligations, just as individuals do. Corporations offer some distance between you (an officer in the corporation) and the entity itself, which might be helpful when dealing with liability. (However, these rules have changed in response to scandal, and vary from state to state, so you will need to talk to an attorney to understand any benefits and limitations.) There are many types of corporations, and an attorney will be needed to advise you on the best corporation type for your business.

Some forms of corporation can be one person, so check the corporation laws in your state to determine if this is the best organization for you. As with partnerships, your city or county might restrict or forbid this type of business from operating from a private residence. There are also some hybrid forms of business, which are not truly and entirely like a typical partnership or standard corporation.

Those include

• A Limited Liability Company (LLC), which mixes the decreased direct liability of a partnership with tax advantages more common to a corporation.

• A Professional Corporation, again, mixing some aspects of a partnership and a corporation. This corporation type is usually available only to certain types of businesses, however, and often limited to high-risk occupations such as doctors, lawyers, and accountants.

• An S Corporation is a corporation that has formed a standard corporation (as described previously) but filed proper forms with the IRS to have the business’ profit taxed as if the business were a sole proprietorship. (Standard corporations are often also referred to as “C” corporations.) For more information on business structures and considerations, visit AllLaw.com. If you are uncertain which business entity is the right type for you and your business, check with an attorney. It is not unusual to start a business as a sole proprietorship and expand it to a partnership or corporation as the business grows, or as liability and other issues become more serious. Incorporating is an additional expense that, as a new business owner, you might not be able to justify until your income from the business can easily cover such costs.

Work At Home Business Form

You also must state whether your business will be a sole proprietorship, partnership, or corporation. A sole proprietorship is you, by yourself, owning and running the business. This is the simplest and most common form of business organization. Your income and

expenses from the business are reported as part of your federal tax return on Schedule C, and you don’t need to file incorporation papers to “form” your business. The simplicity of this form of business is a distinct advantage, but it offers some disadvantages, as well. The chief disadvantage is that liability flows directly to you. This means that a customer can sue you directly for failing to perform the services you agreed to provide. Your home and other assets could be at risk. You can mitigate this risk by purchasing liability insurance (or errors and omissions insurance). If you own few assets (and rent, rather than own, your home), the liability issues might not be as important.

The more assets you have, and the more people who know you have liability insurance, the more likely you are to be sued. The nature of your business is also a key factor. Are you offering services in which safety could be a factor, such as a building contractor who has to be sure that a staircase doesn’t fail? Are you offering services that could greatly impact someone’s life if done incorrectly, such as accounting or legal advice? What happens if you don’t perform as promised? The greater the potential fallout to the client, the more likely someone could be injured or killed, and the more likely someone could be financially ruined, the more likely you are to be sued. A partnership is a formal partnering of you with at least one other person. Forming a partnership generally requires an attorney. As a home business, you might not be allowed to form a partnership unless it is with your spouse or domestic partner (depending on regulations of home businesses in your area). But this could make a partnership the ideal business structure. If you and your significant other are going to share in the work and expenses anyway, this might be a way to formalize that agreement.

Forming a partnership with someone not living with you is a bit trickier. But this is the twenty-first century—the era of the virtual company. If this is someone you know you can trust, and zoning regulations allow it, there’s no reason why two people in different cities – or even different states or countries—can’t use this business form. (With more than one state or country, however, bear in mind that you might have to report income or file forms twice – once in each jurisdiction.) Whether your partner is in the next room or the next country, however, always consider such an arrangement carefully. Ask yourself whether you really know the person you are partnering with for this business. And no matter how well you think you know him or her, treat it as any other professional transaction.

We will tell you what this home based business form means in the next post!