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Your apparel business may be small, but it’s still important to form a legal entity in order to protect yourself and your assets. While there are many different types of business entities, this article will focus on the pros and cons of C-corporations—which are commonly used by startups and freelancers.
This will establish the structure of your company and determine if it falls under any one of the following categories: sole proprietorship, partnership, limited liability company (LLC), or C Corporation.
Sole proprietorship. This type of entity is owned by one person and doesn’t have any shareholders or partners. Income from a sole proprietorship is taxed as personal income on the owner’s personal tax return, which means that it’s not reported as part of the business itself.
Partnership. There are two types of partnerships: general partnerships, which are fairly informal; and limited liability partnerships (LLPs), which have more rules about how they operate but offer more protection for the owners against lawsuits relating to their finances or operations than general partnerships do. In both cases, each partner must report their share of profits or losses from the partnership on their own tax returns each year—but unlike with sole proprietorships and LLCs, there are no separate federal tax forms required for reporting business earnings at this level because partnerships aren’t recognized as separate legal entities in most states (although there may be state-level tax laws that dictate how these businesses should operate). The primary advantage of forming a corporation is that the founders can protect their assets from creditors, lawsuits, and other business issues
In contrast, S-corporations don’t have to pay corporate taxes; they pass through their earnings and losses directly to shareholders, who must pay personal income tax on those profits just like any other business owner would. Partnerships are similar in this regard: they’re treated as sole proprietorships for federal tax purposes, so partnership income flows through from the partners themselves rather than getting taxed twice—once at the corporate level and again when paid out as an individual form of income.
Follow 5 step-guide to form a C-corporation for your Fashion and Apparel business.
A good way to avoid unnecessary hassle is to choose a name that’s available and not being used by another business. The best way to do this is to check with your state’s business division and make sure you’re not infringing on any trademarks or copyrights held by others. If you’re unsure, it’s also wise to run your proposed name through Google search in order to see if anyone else has already claimed it as theirs previously—this step takes only seconds but can save you hours of headache down the road if there are legal issues related to your chosen corporate name later on.
Example of bad name: “The Fashion Company”
Example of good name: “Fashionable Apparel”
Directors must be appointed by the shareholders and can be employees or outside consultants. But unlike officers, who must have certain titles or responsibilities within a company in order to be considered an officer, any person who is appointed as a director can also serve as an officer (provided they have certain titles).
They’re designed to protect you, your employees, and the assets of your company. They also help you avoid legal issues down the road.
You may be wondering why you need bylaws when there are plenty of other laws that protect businesses in this field. The answer is simple: bylaws can help clarify these other laws and make sure they’re followed properly.
An organizational meeting is your first official gathering and it’s a great way to establish the culture of your business, or to lay down the groundwork for the future. Before this meeting, you should have already chosen where you’ll be registered as a corporation.
An EIN is required to open a bank account, apply for credit cards or loans, pay taxes, obtain licenses and permits in some states, report employees’ wages on federal tax forms W2 or 1099 (each state has its own form), file employment tax forms many years after you start your business — basically anything that involves paying taxes or reporting money made from selling goods or services as part of doing business.
So, what does all this mean? Simply put, you can use a C-corporation to protect your personal assets from creditors and lawsuits by shielding them from the corporation itself. And while this is certainly a big advantage of incorporating, there are also some downsides associated with it too. If you’re interested in learning more about how these different forms of business entities might affect your taxes and finances as well as how Trademark Avenue can help simplify the process for getting started as an entrepreneur, visit our website today!
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