• What Form of Company for Your Business

    Discussing your choices for the form of your company with an attorney is strongly recommended. There are service providers that will form and file organizations for a modest fee, but they are not legal advisors for your company nor capable of informing of taxable consequences and legal requirements.

    The most common company forms are:

    Sole Proprietor

    This legal structure is very common. It is very easy to setup, and there are fewer requirements to file applications with the government compared to other forms of companies. You should check with your local town or city government, and county, for business license requirements, and zoning requirements as well. As a sole proprietor you own the business and report to tax authorities via your personal income tax returns. Indeed, you are the business whether you have employees or not. Except for what you delegate to employees, you have full control and total authority for the business. Of course, you are then totally responsible for anything that happens to the business, and you cannot avert direct liability.

    The profit and loss from your business is typically passed along to your personal tax returns, (see IRS Schedule C for federal taxation). The business does not file its own "return" but the net profit or loss is shown on your personal tax return. If you have no employees, you probably do not need a federal tax identification number for the business. Instead, your social security number associated with your personal tax return serves as an identification number associated with your business venture. Before you hire employees, be sure to file for an Employer Identification Number (EIN). A sole-proprietor business without employees usually uses the owner's Social Security Number in the U.S. for filing tax returns.

    If you reside in a community property state, your spouse is likely to be deemed as having a half interest in the business. Consult with your attorney for the local, state and federal regulations that apply to your sole proprietor business. Make sure you understand that the primary disadvantage of a sole proprietorship is the owner's unlimited liability in the event of damages, lawsuit, or other financial losses. You do face the risk of a pet being hurt, and in some businesses, pets have died of natural causes at the pet groomer. Ask your attorney to make it clear what you face losing as a sole proprietorship.

    Partnership

    Two or more owners form a partnership. It is essentially a sole proprietorship with two or more owners. Partners share authority, control, responsibility, liability and profits or losses. The basis of their sharing is either equal or not equal. Each is liable for the actions of the other within the business.

    Today "limited-liability" company forms such as LLC and LLP have become quite popular. It is very important for a partnership to be made by a formal agreement with the assistance of an attorney defining the contributions, authority, liability, control and remuneration for each partner. Typically profits and losses from the business are passed along to each partner for their personal returns, again, you should seek legal and accounting assistance in this matter. Partnerships must apply for federal identification numbers and file business returns in order to report the profit and loss of each partner. Why have a partnership? You have more resources than just you. A partner contributes knowledge, skills, good judgment and timely assistance. However, not all partnerships work out well. They require joint trust, commitment and concern for the business and the other partners. Is this possible for you? Are you comfortable with possibly being held liable for your partner's activities? In fact, it is sometimes possible to be held liable for a partner's activities outside the business partnership.

    Corporation

    The corporation is its own being, a living being separate from its owners. A corporation requires a charter from its resident state when formed. Owners are the "stockholders." In return for your financial investment of capital into the corporation, you are given stock. In return, you can also be given dividends and a portion of the profits from the corporation. You can also be paid wages issued by the corporation, as an "employee." Stockholders elect a board of directors to guide the corporation and protect its interests. Officers are elected by the directors to run the day-to-day business. Officers and directors are responsible to the stockholders. In many states, a corporation can be formed and operated by one person like you.

    When researching company forms you are bound to see many advertisements to help you form a company yourself and save. Be very careful. Filing paperwork without knowing the impact of what you have done can be very expensive. We strongly recommend legal counsel when forming a corporation. The corporation can dramatically reduce your liability for the business, including debts, but there are important exceptions. Here's even more reason for caution we know from firsthand experience. "When" you form can affect your tax liability. If it is December you may want to file and form the company in January so that you don't have to file a tax return for those few days of December. Our best advice is to talk with your attorney, settle on a plan, but do NOT file and form the company until you go to your Certified Public Accountant and review the plan and ask for the taxable consequences. We cannot stress this enough! Attorneys often do not know the tax consequences of their planning! So make both of them part of your team and get both to agree on your plan.

    Stockholder "owners" are liable generally to the extent of the investment of stock, should the corporation fail. Officers and directors are responsible for their actions, and can be fired and re-elected, but generally, their liability doesn't to their personal assets (but again, there are exceptions). To incorporate not only requires counsel, but special filings and additional paperwork on an ongoing basis. The cost of incorporation varies by state, and the mid-range cost is several hundred dollars.

    Don't overlook the ongoing functions of a corporation to hold a minimum of an annual stockholders' meeting, elect directors and officers, maintain a "corporate minutes" book with the involvement of the directors and stockholders as appropriate. Be sure you understand the taxation procedures for a corporation. The corporation pays corporate income taxes on its profits, and then distributes dividends to its stockholders, and the stockholders are liable for personal taxes on dividends they receive. Remember, the corporation pays wages to its employees, and you as a manager and groomer will likely earn wages and be paid in the form of paycheck with payroll taxes deducted. At the end of the year, the corporation will provide you with a W-2 statement of earnings for those wages, along with other forms of remuneration the corporation may have paid you. Again, be sure you clearly understand the workings and requirements of a corporation with tax counsel including an attorney and Certified Public Accountant. In fact, we have worked with CPA's who were also attorneys, very convenient! Are all corporations the same? No. Your counsel can explain the differences between a "S" and "C" corporation, and by the way, the "S" is the most frequent choice for small to medium size grooming businesses with no other shareholders.