The Business entity is not a legal entity by any stretch of the imagination. It is merely one of the various legal forms that can be recognized in United States law. The main purpose of this particular legal form is to separate an individual or company from its creditors and owners. While the general idea behind the formation of a business entity is to prevent interference by third parties, there are a number of other important reasons why this is a very important aspect of company formation. First and foremost, business entities have the ability to restrict themselves from having to give their creditors any rights against the business entity. If the business entity is able to establish an LLC (limited liability company), there will be a much lower risk of a creditor from recovering any debts against the business entity because there will be no chance that the business has engaged in any activity that could get them into trouble.
In addition to providing the business owner protection from creditors, a business entity requires another type of protection from taxation.
The first duty of a corporation is to pay taxes. While some businesses do this without having any formal corporate structure at all, most require some type of formal corporate structure to ensure they pay the appropriate amount of tax. It is a good practice to consult with a qualified accountant or business adviser before taking any steps towards incorporating or forming a business entity.
Another major responsibility of the business entity is to register its trademarks. If you incorporate a business, you will need to also incorporate your company’s names and logos. These names and logos must be registered with the US Patent and Trademark Office. This process can be a little complicated and you should consult a qualified professional to help you through this process. You should always keep in mind that registering a trademark is a responsibility that you are responsible for yourself.
Another responsibility of the business entity is to engage in advertising. If a business is non-profit and conducts business solely through the internet then it is important to note that a business must register its website with the Search Engines. This is required because when people search for services or products offered by a business they should see websites hosted by that business. A non-profit business needs to devote a portion of its budget to SEO to receive free search engine traffic.
One duty that is not often thought of until one is contacted by the IRS is that of paying payroll taxes. In some cases organizations can save money on this duty by allowing an accountant to handle this duty on their behalf. This is not always the best choice though as the business may end up paying a lot more in payroll taxes if the accountant is also from the business entity itself and thus the business owner is not really benefiting from any tax savings at all. It is recommended that you consult a qualified accountant to help you with your payroll tax obligations. As a business entity the company must pay payroll taxes no matter what state the business resides in.
The last duty that must be addressed by the business entity is that of paying sales tax. Sales tax is calculated by adding up the business expenses, including expenses incurred in buying or leasing property, supplies used in the production of the business’s product and in advertising and promotion. The state of the business resides in may have sales tax rates which vary from state to state. Again, it is strongly recommended that you consult with a qualified professional before making any final decisions. You may save some money by doing so but there are still many other expenses that need to be addressed by the business entity such as vehicle registration, property rental and franchise taxes.