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Section Six: Finances, Business Structures and Taxes A. Introduction - Preparing a Financial Statement Local Resources are: Keeping track of your finances and proper payment of tax liabilities is essential to the successful operation of any business. A good software program may help you get up and running and there are several on the market that user friendly and can set you on the right path: Software:
Guides:
B. Business Structures - The four most common forms of a business organization are sole proprietorship, partnership, corporations and limited liability company. Local Resources are: A Sole Proprietorship is a business that is owned by an individual who is solely responsible for all aspects of the business. All that is necessary is to establish a sole proprietorship is to obtain necessary local licenses. Sole proprietorship is the easiest to the legal structures to set up and is the most common small business legal structure. A General Partnership is a legal entity that is jointly owned by two or more persons. As in the sole proprietorship, the owners are personally responsible for all debts of the firm, even those debits in excess of the amount invested in the business. An attorney should be consulted to help prepare the partnership agreement. A Limited Partnership must be filed with the State Corporation Commission. The requirements for establishing a limited partnership include filing a certificate that contains the name of the partnership, its specified office location, its registered agent, and the name of each general partner. A Corporation is a business that is formed and authorized by law to act as a single person, although constituted by one or more persons, and is legally endowed with rights and responsibilities. There are two general types of corporations: regular and Subchapter-S. The Regular Corporation is the better-known corporate structure. This type of corporation requires several procedures:
The Subchapter-S Corporation is a new venture that can have no more than 75 shareholders and no more than 20% of its income earned from passive investments. The losses of the corporation can be deducted by the individual stockholders and can be earned forward or backward to off set any gains. This is a significant advantage in attracting capital from individual investors who want a tax write-off the first several years when the corporation is losing money. When the new venture starts to earn a profit, the structure can be changed from an S corporation to a regular corporation with its accompany tax laws. It is advisable to consult an attorney when organizing a corporation to assure full compliance with Virginia and Federal laws. All corporations are required to file articles of in corporation and amendments with the SCC. Corporations that do business in more than one state must comply with the federal laws regarding interstate and commerce and with the various state laws. C. Taxes - Every person engaged in a business is affected to some degree by local, state and federal tax laws. Business activities that operate for a profit may produce a tax liability, whether the enterprise is a sole proprietorship, a partnership, a corporation, or a limited liability company. The assistance of an accountant may be advisable in determining which taxes your business will be responsible for paying. Local Resources are: There are many issues to consider in managing a business, for more information on the various forms of organization you can read Chapter 3 and 4 in the Virginia Business Resource Directory, which is provided by the Virginia Employment Commission. To receive a copy by contacting the Economic Information Services Division at (804) 786-8223 This is the end of Section Six: Finances, Business Structures and Taxes. Please
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