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Legal Organization

© 2003 Brigitte A. Thompson

Once you decide you want to open a business, you need to determine your legal organization. The most common choice for a single business owner is a sole proprietorship. This is the easiest option to establish and maintain.

IRS Publication 583 defines a sole proprietorship as the simplest form of business organization. "The business has no existence apart from you, the owner. Its liabilities are your personal liabilities and you undertake the risks of the business for all assets owned, whether used in the business or personally owned."

This means that you are ultimately responsible and liable for any business debt and your personal assets can be used to cover a business debt. This unlimited liability is the greatest negative aspect associated with this form of business organization.

As a small business owner, you may want to do some research into the other legal entities such as a Limited Liability Corporation or an S Corporation. Both of these entities provide limited liability, which allows you to separate from your business. Thus, your personal assets can realize some protection in the event of a business debt or lawsuit.

Each option has its own income tax ramifications, so you may want to do some research before you decide. There are some IRS publications that can assist you with this decision. You can order Publication 334, 541, 542, and 589 by calling the IRS at 1-800-829-3676. It is also a good idea to consult a lawyer or accountant.

Brigitte A. Thompson is the President of Datamaster Accounting & Publishing Services, LLC and author of several recordkeeping books for daycare providers. To find out more about her books please visit " target="_blank">

All information is based on the current federal tax laws of the United States. Since these laws are subject to change, neither the author nor assume liability for modifications that occur after the creation of this work. Every effort has been made to ensure this information is as accurate and complete as possible. These articles contain general information for businesses and are offered as an overview of the law.

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