FAQs

What do sole proprietor, LLC, partnership, C Corp, and S Corp mean?
  • Sole proprietor – Sole proprietors have complete control of the business. You’re automatically considered a sole proprietor if you do business activities, but don’t register as any other kind of business.
  • Limited Liability Company (LLC) – LLCs take advantage of corporation and partnership business structure benefits. LLCs protect you from personal liability in most instances. (Your personal assets — like your vehicle, house, and savings accounts — won’t be at risk.)
  • Partnership – Partnerships are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: limited partnership (LP) and limited liability partnership (LLP).
  • C Corp – A corporation (C corp) is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, and be held legally liable. The cost to form a corporation is higher than other structures and they pay income tax on their profits. In some cases, corporate profits are taxed twice.
  • S Corp – An S corporation (S corp) avoids the double-taxation drawback of regular C corps. S corps allow profits and some losses to pass through directly to owners’ personal income without ever being subject to corporate tax rates. S corps must file with the IRS to get S corp status, which follows a different process from registering with their state.

For more information on business structures and related tax considerations, visit the U.S. Small Business Administration’s review of common business structures.

What is angel investing and Crowdfunding?

Angel Investing

An angel investor provides capital for a business startup usually in exchange for convertible debt or ownership equity. Angel investors generally focus more on helping startups get started than profiting from the business. They are often the entrepreneur’s family and friends. There are no restrictions on the maximum amount of investments an angel investor can make

Crowdfunding

For crowdfunding, many people contribute funds to finance a new business venture. Through trusted crowdfunding websites, businesses can reach hundreds of thousands of potential donors or investors. Crowdfunding investment is usually limited to start-up capital.

What are NAICS and SIC codes?
  • North American Industry Classification System (NAICS) Code – NAICS (pronounced nakes) is the standard for federal statistical agencies in classifying business establishments for data collection, analysis, and publication related to the U.S. business economy.
  • Standard Industrial Classification (SIC) codes – The NAICS replaced the SIC system.
What are DUNS and SAMMI?
  • Dun & Bradstreet Dun & Bradstreet established the Data Universal Numbering System (DUNS), which has become a standard business identifier worldwide. Obtaining a DUNS number is the first step in registering as an organization applicant in Grants.gov. The federal government uses the DUNS number to track how federal money is allocated.
  • System for Award Management Managed Identifier (SAMMI) – SAMMI numbers are coming soon to replace the current DUNS system. As of now, the contract has been awarded to Ernst and Young and the website registration and other processes are still being worked out. You will need a DUNS numbers to register for a SAMMI number, so until then, continue to use the DUNS system.

    For more information on the transition process, read SAMMI’s Coming – DUNS’ is Leaving.
How do I name my business?
  • Entity name – An entity name can protect the name of your business at a state level. Check with your state for rules about how to register your business name. Depending on your business structure and location, the state may require a registered entity name. Most states don’t allow you to register a name that someone else has already registered.
  • Trademark – A trademark can protect the name of your business, goods, and services nationally from being used by other U.S. businesses in the same (or similar) industry. Use the official trademark database to check that any names are not already in use.
Must a partnership or corporation file an information return or income tax return even though it had no income for the year?
  • Partnerships – A domestic partnership need only file an information return if it received gross income or any deductions were incurred for credit or federal tax purposes.
  • Corporations – Unless exempt from filing under Section 501, any domestic corporation must file an income return whether or not it has taxable income.

For more information, visit the IRS’ FAQs for small business, self-employed, and other business.

What is the difference between a Form W-2 and a Form 1099-Misc?

Both forms are information returns.

  • Form W-2 –Employers use Form W-2 to report an employee’s compensation, tax withholdings, and other information.
  • Form 1099-MISC – Payers use Form 1099-MISC to report payments made to non-employees.

For more information, visit the IRS’ FAQs for small business, self-employed, and other business.

How do you determine if a worker is an employee or an independent contractor?

These determinations are made on a case-by-case basis. There are three basic categories to help make this determination:

  • whether the party has any behavioral control to direct the work,
  • whether the party has any financial control of the business side of the work, and
  • how the parties perceive their relationship.

For more information, visit the IRS’ FAQs for small business, self-employed, and other business.

Does a small company that operates as a sole proprietorship need an employer tax ID number (EIN)?

A sole proprietor must have an EIN if they have any employees or need to file an excise or pension plan tax return. For more information, visit the IRS’ FAQs for small business, self-employed, and other business.

How does my business become an S Corporation?

Use Form 2553, Election by a Small Business Corporation to make an S corporation election. A business entity treated as a corporation must meet certain standards to qualify to be an S corporation.

For more information, visit the IRS’ FAQs for small business, self-employed, and other business.