How do I protect myself from personal liability against business debts?
Business owners can get liability protection only through a properly formed and maintained entity, such as a corporation or a limited liability company (LLC).Once established, it is important to keep the affairs of the business, including its legal and financial assets and obligations, separate from the personal affairs of the owners.Problems arise when the entity is treated as a sham or when business and personal affairs become intermingled.Other factors could also be relevant.
Which is better, a corporation or an LLC?
Each type of entity may function equally well for a given business, but there are differences that should be discussed with legal counsel in determining which entity will work best for you.Depending on the circumstances, the income tax treatment can be different.
How important is it that I trademark my business name or logo?
It depends mostly on the nature of your business and the breadth of its geographic market.If you have a local business that you don't foresee expanding its service area, then trademarking is less important because there will likely be less chance of brand confusion.But if you conduct interstate business, especially if it is the type of business where you can face substantial competition, then registering the trademark with the US Patent and Trademark Office can be an important step in protecting your business interests.
Should I have employment agreements with the people I hire?
Not necessarily.They can be more important with executives and key employees, such as top-level sales people or employees who design or develop new products.An employment agreement can provide important protections for the employer, such as requiring confidentiality of information, keeping the employee from competing with the company for a limited period after termination of employment, or prohibiting the employee from soliciting former coworkers (i.e., your employees) to join with a different business.
I am a non-owner employee.Should I have an employment agreement?
It depends on your position and whether your employer is willing to negotiate with you.If you are a star in the sales department or work at the executive level, for example, then an employment agreement could serve some valuable functions, such as defining the terms of your compensation and benefits, binding your employer to terminate you only for cause, or providing severance payments to you if you are let go without cause.
Can I get tax-exempt status without being incorporated?
Yes, but a corporate form is most typically used because other forms of organization lack statutes that provide governing structure and liability protections.
My organization is already a non-profit corporation under state law.Does that give it tax-exempt status?
No.The entity has made an important first step by incorporating, but it must also apply to the IRS for a determination of whether it qualifies as a tax-exempt organization.There are many corporations that are non-profit entities under state law but are not tax exempt.
Are there different types of tax-exempt status?
Yes, and they are not entitled to the same benefits.A 501(c)(3) organization is what most people think of, but it is a status available only to qualifying charitable, educational, and religious organizations.There are many other organizations that may qualify for exemption under a different section if the Internal Revenue Code, such as 501(c)(4) social welfare organizations.Designation as exempt under 501(c)(3) confers the most favorable status, including deductibility of contributions made to the organization.Contributions made to other exempt organizations are not tax deductible by the donor.
How difficult is it to get tax-exempt status?
It depends on the purposes for which you organization has been formed.The application for 501(c)(3) exempt status is much more detailed and complicated than applications for other types of exempt status.Significant work can be involved in preparing an application, especially if the entity is new and has little or no operating history.In that situation, projections have to be made about finances, how the organization will raise funds, and other matters.
How long will it take before I find out if my organization is tax-exempt?
Once a completed application has been submitted to the IRS, it will be at least a couple of months before the IRS begins to evaluate it.Unless the entity's status is clear from the application, there may be several rounds of communication with the IRS to address questions.