Choosing the right business structure for your child care business is important. Some common business structures include: sole proprietor, partnership, limited liability company (LLC) and a corporation (S or C Corporation). Some reason to incorporate your child care business is to lower taxes and/or for personal liability protection. Before you decide which business structure to use take some time to educate yourself on taxes and legal aspects. Now let’s talk about the different structures.
A sole proprietorship gives you complete control of your business but does not separate business entity. This means your business assets are liabilities are not separate from your personal assets and liabilities, so if you are sued they can sue you for your personal assets such as house, car, savings account, etc.
Partnerships are two or more people to own a business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). Limited partnerships (LP) have only one general partner with unlimited liability, and all other partners have limited liability. A limited liability partnerships (LLP) protects each partner from debts against the partnership, they won’t be responsible for the actions of other partners.
Limited Liability Company (LLC):
Limited Liability Company (LLC) protect you from personal liability in most instances, your personal assets (vehicle, house, and savings accounts) won’t be at risk in case your LLC faces bankruptcy or lawsuits.
Corporation (S or C Corporation):
C corp is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, can be held legally liable and in some cases can be taxed twice. S corp is a special type of corporation that’s designed to avoid the double taxation and allows profits, and some losses, to be passed through directly to owners’ personal income without ever being subject to corporate tax rates. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.
How do I become incorporated?
(1) choose a business structure (2) conduct a business name search to ensure the name is available (3) register the name with the Secretary of State (4) obtain an EIN with the IRS and state tax ID with your state (5) apply for the appropriate licenses (6) open a business bank account (7) get business insurance
IMPORTANT: Before you decide which business structure to use take some time to educate yourself on understanding the additional fees and other requirements as well as the possibility that it will not offer you complete personal liability protection. If anything, your best protection is to purchase business liability insurance.