Cash,King,Decide,Early,amp,#34 DIY Cash is King, So Decide Early "What Kind Of Company

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Cash is King!Finance. Money. Making the most of it.This article is devoted to helping you receive information on money, record keeping, taxes and etc. so you can make better decisions and run your business efficiently. Also, keep Uncle Sam happy, if you know I mean. As always, the best advise is to review this article with your accountant before making decisions.One of the first business decision you will have to make is deciding what legal and financial business structure best fits your art business. There are four basic types of legal and financial business structures each with their own advantages, disadvantages and financial implications. They are: a Sole Proprietorship, a Partnership, a Corporation and an “S” Corporation.A Sole Proprietorship is a business that has one owner who assumes the responsibility for all profits and debts or liabilities of the business. Sole Proprietorship’s are easy to get started, you are the boss, you get to keep all of the profits, the business income is taxed as personal income and the reporting and record keeping requirements are less stringent than any other form of business. This form of business is perhaps used by a larger audience of art instructors and smaller suppliers. It also has certain disadvantages if you’re widely successful and need to hire employees. I’m not sure how many of us face this problem, but it is generally more difficult to hold and attract high quality employees. It is much more difficult to raise investment funding (commonly referred to as Capital). The business life can not be passed on, nor will it survive the owner and the owner accepts unlimited liability.A Partnership is a business where two or more people agree to share in the companies' profits and losses. This may appeal to certain artists who work together consistently teaching classes or building a business. It is also easy to get started, two or more heads are better than one, more investment capital is available and the partners only pay personal income tax on the business income. The down side is that partners may disagree, the partners assume unlimited liability even for the business debts of each other and all profits must be shared. I strongly recommend that you have a written partnership agreement that is drawn up by a competent attorney. The document should state at a minimum what each partners rights and responsibilities will be, what amount of capital funding each partner will contribute, what the percentage of ownership will be, how the profits and or losses will be distributed, how partners can join or leave the business, how disagreements will be handled and how assets will be distributed in the event the business is discontinued.If you have a considerable business, or plan to open a retail outlet, you should consider a Corporation (also referred to as a “C” Corporation) which is a business that in the eyes of the law is considered a separate and distinct entity with the same rights as an individual person. This existence is separate from its owners and offers several specific advantages. A corporation’s liability is unlimited while the owners or stockholder's liability is limited. This means that the owners are not personally responsible for either losses or the business debts. The ability to raise investment capital is easier because you can sell shares of stock in the company. As a separate entity, it is easier to transfer ownership by selling your stock and the company can survive the original owners because the corporate life is unlimited. The main disadvantages are taxes, start up costs, taxes, government regulation and, oh did I mention taxes. Unfortunately corporations are subject to a variety of taxes that individuals and partnerships are not. There are annual taxes on the number of outstanding shares of stock. There is a double tax where you pay taxes on what the corporation earns and on what you earn as profits you take out of the corporation. A corporation must have a state charter and therefore the costs associated with drawing up legal documents are much greater than with a sole proprietorship or a partnership. Record keeping requirements, both federal and state, are much more complex and professional assistance is critical.To complete your education (even though few will want to form such an organization), an S Corporation is essentially one that has elected to be treated like a partnership. The main advantage to this form of company structure is that one avoids the double taxation rule of a regular “C” corporation. Income or losses are passed through to the shareholders and taxed at the personal level. Also S Corporation shareholders are not personally liable for the debts of the corporation and therefore it limits the liability exposure to owners. S Corporations also have disadvantages. These include filing with the state for permission to operate making it more costly to establish. Shareholders are limited to no more than thirty-five of which none may be another corporation. Legally you are required to have a board of directors, annual meetings and more formal reporting making it more complex to operate and manage. And lastly, there exists restriction on the types of stock that may be issued by this form of company.There is one other form of company structure that is recognized by the IRS called a Limited Liability Company (LLC). This relatively new structure is similar to an S Corporation except that it generally has a limited duration that is fixed and has less formal operating and reporting requirements.The financial implications of these types of business structures all vary. The Sole Proprietorship is the least costly. The Partnership costs more because you should have legal documents covering the partnership agreement thereby incurring slightly higher legal costs. The S Corporation and LLC cost even more due to the required state filings and other legal document preparations for partnership agreements. And lastly the regular C Corporation simply costs the most due to initial state and federal filings, legal document preparation such as articles of incorporation and bylaws and the continuous reliance on accountants, lawyers and other professionals.Financial Tip.Before deciding the type of company you want to be or have, carefully weight the pros and cons of each type of structure. Seek out the advice of accountants, lawyers and even your local banker. Check with your local community to see if you need any local permits to operate. Depending on your type of art business and its location you may need a local occupancy permit or a seller’s permit. If you are operating your business from your home, checking with local authorities about permits is critical. Also, a local permit to operate a business from your home will add validity to the IRS requirements of using your home for business purposes. Some states impose a minimum tax on Corporations while other do not recognize an S Corporation. You do not need a separate taxpayer identification number (TIN) as a sole proprietorship or partnership unless you pay wages to one or more employees, but you do for each of the other forms of business. A TIN does not cost anything to get but it's just nice to know when you need one.Estimated typical costs to establish any of the above types of companies varies and depends on many factors. Amounts to use as general guidelines are: for a Sole Proprietorship under $100 to $200, for a Partnership from $100 to $500, for an S Corporation or LLC from $400 to $1,000 and for a regular C Corporation from $500 to $2,000.One last tip, although not specifically financial in nature, does offer advise on where to obtain free information that I highly recommend and I am sure that you will find invaluable. There are several ways to contact the IRS for free forms and publication: by phone call 1-800-TAX-FORM, by mail at Western Area Distribution Center, Rancho Cordova, CA 95743-0001, the Central Area Distribution Center, POB 8903, Bloomington, IL 61702-8903 and the Eastern Area Distribution Center, POB 85074, Richmond, VA 23261-5074 and by computer on the World Wide Web at http://www.irs.ustreas.gov. On the world wide web site I recommend you look at or down load publication 334 a Tax Guide for Small Business, publication 583 on Starting a Business and Keeping Records and form 1040-ES for Filing Estimated Taxes For Individuals.Finally, I would like to leave readers with one small bit of advice. “In a small business the most important asset you should watch more closely than any other is CASH," put more simply; in a small business, Cash is King.