What Is a Small Business Corporation?
Brandon Roy
The definition of small business varies by state. Oregon, for example, lists several definitions in statute and rules such as microenterprise, emerging small business concern, Oregon growth business, and small private railcar company.
Corporations can avoid double taxation if they make a subchapter S small business election with the Internal Revenue Service. In this case, profits and losses are passed through to shareholders.
Definition
A small business corporation is a legal entity that offers its owners limited liability protection. This means that a creditor can only touch the corporate assets in the event of bankruptcy. However, a creditor can still go after the personal assets of shareholders if the corporation fails to meet certain requirements.
In the US, corporations are required to keep records that document all capital receipts and stocks. There are also tax codes that limit the amount of money a corporation can receive and sell during any one fiscal year.
The SBA has a set of size standards that are used to determine whether or not a company is considered a small business. These are based on specific industries and revenue levels. Some states, such as Oregon, have their own definitions and criteria for what qualifies as a small business. These differ between state and local governments as well as within the private sector. The Office of Small Business Policy at the SEC assists companies seeking to raise capital through exempt or smaller registered offerings. If you don’t know the steps of starting a small business, then don’t get worried simply because a trusted platform is here known as bizop.
Taxes
The type of legal business structure you choose can impact important issues such as your exposure to liability and at what rate you are taxed. Corporations tend to be more complex and expensive to establish and maintain than other entities such as partnerships or LLCs.
Small business corporations that elect subchapter S status under the Internal Revenue Code have some significant tax advantages for their owners. For example, the entity structure shields owners' personal property from corporate liability and passes through income to avoid double taxation.
The limited liability protection of a corporation is one reason many business owners opt for this type of structure, particularly over a sole proprietorship or partnership. However, you should understand the caveats of this type of entity before you commit to it. For instance, the entity must comply with certain corporate formalities or else you may lose the benefits of limited liability protection. You will also need to pay state incorporation fees and ongoing filing fees that vary by jurisdiction.
Requirements
A small business corporation is a legal entity that stands independent of its owners. It can form contracts, incur debt and pay taxes. In addition, the law protects shareholders from personal liability for company debts.
A business must meet certain guidelines to become a small business corporation and to qualify for special tax benefits. Corporations may need to obtain licenses and permits, depending on the industry. Businesses should consult with their local business offices and county Board of Equalization locations to determine what types of state and local licenses they must acquire.
Other requirements for becoming a small business corporation include filing with the IRS to make an election under subchapter S of the Internal Revenue Code and meeting gross receipts and stock limitation requirements. Companies may also want to trademark their business name and register for a federal tax ID number. This is especially important if they plan to raise capital. Corporations may also need to consult with the Office of Small Business Policy at the Securities and Exchange Commission for interpretive assistance. Those who are imagining to start a new business need to check out our site.
Licensing
When you're starting a small business, there are plenty of exciting tasks to complete: finding the perfect location, choosing a logo and getting your name out there. However, you should also pay attention to the less fun paperwork and licensing requirements. Failing to obtain a license can lead to financial penalties, liability risks and, in some cases, even jail time.
The type of license you need depends on the type of business you are running. For instance, if you are operating a restaurant or selling liquor, you will need a liquor license. Other types of licenses are required for a variety of industries, including those involved in manufacturing, agriculture and cleaning services.
In addition to state and local permits, you may need a federal tax ID number for your business. Sole proprietors can use their Social Security numbers, while multi-person businesses need to file for an Employer Identification Number (EIN). You may also need a fictitious name license (DBA) or trade name registration if you plan on doing business under another name than your legal one.