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Common types of entities are sole proprietorships, general partnerships, limited partnerships, corporations (“C” corporations or “S” corporations), and limited liability companies. Limited partnerships, corporations, and limited liability companies are required to file with the Indiana Secretary of State.
Your new business will need an employer identification number (Form SS-4) and you will need to file an Indiana Business Tax Application (Form BT-1). If you elect to be taxed as an “S” corporation, that election will also need to be made. You may work with your accountant or CPA to file these forms.
Licenses and Permits
Depending on the type of business, you may be required to obtain licenses or permits.
Assumed Name Certificates
If you plan on operating your business under a name different than its legal name, you must file a Certificate of Assumed Business Name with the Indiana Secretary of State.
If you are contributing money to your new business, it can be considered capital (investment in the company) or a loan (which must be repaid) — this classification has important tax consequences. Outside financing may be obtained through loans from financial institutions (possibly SBA loans), loans from venture capitalists/angel investors, loans from friends and family, or public/private offerings of stock/ownership interests (subject to securities laws).
You must register your business with the Indiana Department of Workforce Development (Report to Determine Status) to create a state unemployment account. Also, it is very important to obtain workers compensation insurance.
A sole proprietorship is a business in which one person owns all the assets, owes all the liabilities, and operates in his/her personal capacity. A sole proprietorship is the easiest type of entity to form and operate; however, the owner is personally liable for all of the obligations of the business.
A partnership is an association of two or more persons to operate a business for profit. No filing is necessary to form a general partnership. All the income and losses flow through the entity and are taxed to or deducted by the partners. Each partner is jointly and severally liable for the obligations of the partnership and each partner has the power to act on behalf of the partnership.
A limited partnership is a partnership that has general partners and limited partners. Only the general partner is personally liable for the partnership’s obligations and, in exchange, the limited partners have no right to act on behalf of the partnership. A limited partnership must comply with statutory requirements.
A corporation is a legal entity created by statute which has shareholders (owners), directors, and officers. Shareholders are not personally liable for the corporation’s obligations (except in rare instances). A “C” corporation is subject to taxation at the corporate level and then dividends are taxed at the shareholder level. An “S” corporation may only have one class of stock and has a single level of taxation (income and losses are passed through to the shareholders). Corporations must comply with many statutory requirements (annual meetings, record keeping).
Limited Liability Company
A limited liability company is an unincorporated association created by statute in which the owners are called members. The company may be member-managed (the owners control the day-to-day activities) or manager-managed (the owners appoint a manager to handle the day-to-day activities). Members are not personally liable for the company’s obligations (except in rare instances). A limited liability company may be taxed as a disregarded entity, partnership, or “S” corporation.