As a business owner, you can come across a circumstance where you desire to alter the legal makeup of your company. Perhaps you were a sole proprietorship at first, but you now wish to create an LLC. Another option is to change from a partnership to a corporation. Whatever your motivation, the good news is that you can alter the type of business you run.
Changing your business type entails dissolving your current legal entity and forming a new one. This procedure can be time-consuming and expensive, but it might be worthwhile if your new business type offers better tax advantages or liability protection. It’s crucial to speak with an attorney or accountant before making any changes so they can advise you on the best course of action.
The Limited Liability Company (LLC) is one of the most often used business structures. Although LLCs have many advantages, like pass-through taxation and limited liability protection, there are also drawbacks to take into account. For instance, LLCs may have a more complicated tax structure than other business structures and are subject to state-specific rules and taxes.
The sole proprietorship is yet another popular company structure. Sole owners do not need to submit articles of incorporation or pay state-specific fees, in contrast to LLCs. However, sole owners do not enjoy the same level of asset protection as other business models and are personally liable for all corporate debts and liabilities.
Setting up money for taxes is crucial if you operate as a lone proprietor. You will be liable for paying both the employer and employee share of Social Security and Medicare taxes if you are a self-employed person. A minimum of 25–30% of a sole proprietor’s income should be set aside for taxes.
And finally, some company owners might ponder whether they are permitted to use the same Employer Identification Number (EIN) for various enterprises. No, is the response. Even if they are owned by the same person or corporation, every business entity needs a separate EIN.
In conclusion, switching the nature of your company is a possibility, but you should carefully consider the advantages and disadvantages before taking any action. Consult experts and think carefully about how it will affect your company.
Limited Liability Companies (LLCs) and Doing corporate Assemblies (DBAs) are two distinct corporate entity kinds.
Using an LLC, the owner’s own assets are kept separate from the company’s assets. It affords the owner personal liability protection, so if the company is sued or goes bankrupt, the owner’s personal assets are not at danger. Additionally, because an LLC is a separate tax entity, it must submit its own tax returns.
DBA, on the other hand, is a method of conducting business under a name other than the owner’s legal name and is not a legal corporation. Other names for it include “fictitious name” and “trade name.” The owner’s personal assets are not protected by DBA, and business income is declared on the owner’s individual tax return.
In conclusion, a DBA is just a technique to conduct business under a different name without providing personal liability protection, but an LLC offers personal liability protection and has a separate tax structure.