LEGAL FORMS OF ORGANIZING YOUR BUSINESS
42-2-5 (2) Every person who carries on, conducts, or transacts business in this state under an assumed name, whether that business is carried on, conducted, or transacted as an individual, association, partnership, corporation, or otherwise, shall file with the division of Corporation and Commercial Code a certificate setting forth:
- The name under which the business is conducted.
- The full true name of the person transacting the business
- The location of the principal place of business
In other words, to conduct a business under an assumed name, a name other than your own, a made up name, or fictitious name that is different from the owner or owners legal name, requires that the person or persons conducting the business register that fictitious name with the Utah Department of Commerce Division of Corporations and Commercial Code.
When the name is registered, the user has to also determine the legal form under which the business will be conducted. Following, there are the three most common ways that business are organized as. They are:
SOLE PROPRIETOR/DBA
An individual doing business under an ASSUMED NAME, aka as DBA (TITLE 42 Chapter 2 ) One person makes all the decisions, receives all the benefits, assumes all the responsibility with no limitations. Reports taxes on Schd C form 1040. All profits subject to Income and Self Employment taxes up to the limits established by law and adjusted yearly by the IRS. GENERAL PARTNERSHIP
Same as a DBA but has more than one owner/partner. Simplest form of partnership. Must reports taxes on form 1065 and issues a K1 form to each partner. LIMITED PARTNERSHIP
Two types of partners: LIMITED PARTNER puts the money for the business, but, does not participate in management, his/her responsibility is limited to amount invested. GENERAL PARTNER
in charge of management, has no limit to risk/liability. This form of legal organization requires a Partnership Agreement to determine responsibilities, authority, duties and responsibilities, daily tasks and routines, distribution of profits/loss, etc, according to partnership shares and Partnership Agreement provisions. Prepares form 1065 when declaring taxes, just like General Partnerships, and issues form K1 to each partner. LIMITED LIABILITY COMPANY. Title 48-3a
It is a partnership, for tax purposes, unless members elect to treat it as an S Corp (file form 2553 and Form 8832 with the IRS). Can have one or more partners, called Members. It allows partial separation between owner and business, thus exempting the owner/partners from liability, provided the standards of conduct have not been violated. 1280Requires Operating Agreement among members. Members share in profits and loss according to interest share. Company does not pay taxes, profit or loss flow through to the members (partners) who pay taxes at personal income tax rates. Issues K1 to each members. Reports taxes to IRS through form 1065 unless Disregarded Entity in which case files a Schedule C as part of form 1040. Income from an LLC is subject to Self Employment Tax (Soc Sec and Med) up to the limit established by law and adjusted every year by the IRS. C CORPORATIONS. Title 16-10a
Created by law, the State’s law where it is created. Owners are shareholders. Total separation between owners and business. Owners who do the company work are considered employees. If regular corporation, C Corp, pays its own taxes, considered an Independent taxpayer.. Shareholders limited only to number of shares authorized. May be required to report to SEC and S&EC if transacted in primary and secondary markets and more than $10 mill in assets and more than 500 shareholders. Board of Directors represents shareholders and responsible for management. Files form 1120. Distributes income to shareholders in the form of dividends. Shareholders must pay Dividend Tax. Double taxation of profits, first when income is produced, and later when income is distributed as dividends to shareholders. S CORPORATIONS
Flow Through entity. Same rights and obligations as C Corp. Must file form 2553 to elect Small Corp. status. The “S” Corp does not pay taxes, it reports its yearly activities to the IRS on form 1120S, issues a K1 form to each shareholder to report their share of the profits or loss for the tax year. The shareholders declare form K1 in their personal taxes (Form 1040), together with all other income they obtained fort the tax year and pay the taxes accordingly. Shareholders that do the work of corporation are considered employees and formal payroll must be prepared by the corporation to record the remunerations paid to employees and taxes paid to the required government agencies on behalf of those employees, issuing a W-2 to ea employee after the year end. The employee shareholder will also receive a form K1 for his/her share of the profits for that year. Income from an S Corp and reported on form K1 is not subject to Self Employment Tax (SET). However, if the shareholder worked for the corporation and there is no payroll prepared for him/her, but the shareholder received a form K1 for his/her share of the profits, the IRS may apply the same rule applicable to an LLC on distributions of yearly profits, that is, to apply SET (15.3 %) on the totality of the profit share declared on form K1, up to the limit established by law, whenever the income received from the corporation is the shareholder’s sole source of income.