One of the complex processes for an entrepreneur or a group of entrepreneurs is to start their own business. The complexity is mostly related to legal hurdles involved in starting a business. After deciding your company name, getting the EIN (Employer Identification Number) is the foremost legal obstacle faced. For identification of the company, EIN is essential which basically the federal tax number is. EIN is mostly required in starting a corporation, LLC or partnership.
EIN can also be gained easily only by applying it at the IRS website. The second hurdle is the registration of your business. You must hire a lawyer that will help you in registering your company name. The third legal obstacle is completing a company’s personal-property tax form. Taxes are imposed on businesses as personal property. Fourth, you need to get a seller’s permit, also known as certificate of resale. Through it you can avail of state sales tax on selling your products. Fifth, you need to get a business bank account using your EIN and business name.
Before starting a business, you must also the significant differences between the S corporations and the sole proprietorship and the legal hurdles that come along with them. Sole proprietors are the majority of entrepreneurs in the business, it refers to their legal status within the company.
A sole proprietor is the one who does not create any limited liability company and is running the business alone. All the assets of the company are owned by the sole proprietor. However, one major drawback of a sole proprietorship is that no limited liability protection is provided by them. Getting liability insurance is best in sole proprietorship so that the person is not liable to pay for any damages incurred.
With respect to taxes, no taxes are paid by sole proprietors. Under the Tax Cuts and Jobs Act, they are also eligible for a twenty percent deduction of their income. Although the self-proprietors’ business does not need to provide compensation insurance to its employees, they do not need to file unemployment taxes of federal or employment tax return or pay income tax or payroll taxes, but it has to pay Medicare and social security taxes which are the self-employment taxes.