You’ve now got your club registered with BetterInvesting, your club members are BetterInvesting members, you’ve got a club name and you’ve got some leaders.
That’s great. Now you need to establish yourselves in the eyes of the government. To determine which type of legal “business entity” is best for you, carefully review the upside and downside of each one. Here's a description of the various types of business entities.
General Partnerships are preferred by most clubs since they allow the taxes to pass through to partner personal tax returns, and therefore, have minimal costs and minimal paperwork. General Partnerships are the least costly business structure.
The Partnership Agreement
New investment clubs that join BetterInvesting typically adopt and use the General Partnership Agreement developed by the Mutual Investment Club of Detroit – one of the organization’s founding clubs. A copy of that clubs partnership agreement can be found here. BetterInvesting suggests you review this agreement and use it to develop the partnership agreement for your club. Remember, your club can modify the agreement at any time in the future and should not let developing the agreement become a barrier to moving forward.
Registration Requirements
For a general partnership, file a “Certificate of Conducting Business as Partners” form known as a “Doing Business As (DBA)” with the county or state. Registration requirements vary from state to state and for that matter, county to county. BetterInvesting encourages all clubs during formation to determine their registration requirements with local authorities. Have your club secretary or treasurer contact the Secretary of State’s office or licensing board, as well as the office of your local county clerk.
Federal Tax ID Number
Your Employer Identification Number (EIN) is your federal tax ID. An (EIN) is required for your partnership tax returns, and also by the bank and brokerage firm in order to open an account. You can apply for an EIN online at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online. Once you complete the online process you will be provided an EIN that you can download, save and print.
If you'd rather go the pencil and paper route, you'll need an I.R.S. Form SS-4. You can get a copy at any library as most have an I.R.S. forms book, or you can copy the form from the IRS Website at www.irs.gov. After you have filled out the form, you need to submit it to the IRS per the instructions on the form. After you submit the form you will receive your Employer Identification Number (EIN) in about four weeks. If you need the EIN sooner to open a brokerage or bank account, you can call the Tele-EIN phone number shown on the SS-4 instructions.
FAQs
To form a corporation in California, Articles of Incorporation must be filed with the California Secretary of State's office. Forms for the most common types of Articles of Incorporation are available on our Forms, Samples and Fees webpage. You may use the form or prepare your own statutorily compliant document.
What does legal structure mean? ›
A legal structure is an organizational framework for how a business entity operates. Also called a business structure, a business form, or a business ownership structure, the proper legal structure depends on the size and type of your business and your business goals.
Can I change the legal structure of my business? ›
The legal structure of your business is not a one-and-done proposition. As businesses grow, evolve, and change, it may make sense to change the legal structure of your business.
What are the 4 types of business structures? ›
The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A limited liability company (LLC) is a business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.
What is an example of a legal structure? ›
The five types of business structures are sole proprietorship, partnership, limited liability company, corporation and cooperative. The right structure depends mainly on your business type.
What legal structure is easy to create? ›
A sole proprietorship is easy to form and gives you complete control of your business. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business. Sole proprietorships do not produce a separate business entity.
What is the most popular legal structure? ›
The three most common business-legal structures are sole proprietorship, partnership, and limited liability company (LLC). A single individual owns and operates a sole proprietorship. This is the simplest and most common form of business structure.
What is legal structure ownership? ›
One of the most important choices you will make when forming your new business is which legal structure to choose from. Also called a business ownership structure or business form, choices include LLCs, partnerships, sole proprietorships, corporations, non-profits, and co-operatives.
What does legal structure ownership mean? ›
Legal entity interests may be owned individually, owned by another legal entity, or held in trust. Some of the most common legal entities holding title to real property in California are: Corporations. Limited liability companies (LLC) Partnerships.
Is it hard to change a business structure? ›
It's Easy to Change Your Business Structure
There's no reason to stick with a business structure that no longer works. In fact, the process is easier than you probably think. Remember that any changes can have a significant impact on your taxes.
A change in business structure often means that you want to re-organise the governance structure of your business. Usually, you do this to be more profitable, improve processes and adapt to the changing needs of your business. A business structure is often the first change you make when your business grows.
Can I change the ownership of my business? ›
The most common way is to sell the business to another person or company. If you own the business along with partners, you may reapportion ownership among the multiple partners. Another way is to gift the business to someone else. You can also transfer ownership through a merger or acquisition.
What legal structure is best for my business? ›
LLCs offer both protection and flexibility, and the LLC is a popular choice for a legal structure of a business. They protect you from personal liability and provide tax flexibility similar to sole proprietorships and partnerships.
What is a legal business structure? ›
A legal structure is a recognized category of organization from a legal perspective that influences how your business will operate regarding taxation, recordkeeping. Designating a legal structure for your company can also reduce the risk exposure of your personal assets.
How an LLC is structured? ›
A member managed LLC is run by the owners of the company. This is the usual structure. Another structure is the manager-managed type, which, as the name implies, has a separate manager responsible for daily operations. The managers are named in the operating agreement, which all owners sign.
Which legal structure should you set up for your business? ›
An LLC offers some benefits of the corporate structure, such as protecting the business owner's personal assets, but is generally easier to set up. This form of business offers more flexibility in how profits are distributed, compared to S and C corporations.
What is the best legal structure for a small business? ›
Limited Liability Company (LLC)
Without a lot of aggressive work in the courtroom, if your business is involved in a lawsuit or judgment, your personal assets will likely not be seized. Paperwork – Compared to corporations, LLCs have far less paperwork.
What is ownership legal structure? ›
A business's legal and ownership structure determines many of its legal responsibilities, including the paperwork that the owners need to complete in order to set up the business, the taxes the business has to pay, how profits from the business are distributed, and the owners' personal responsibilities if the business ...
How to be your own entity? ›
How to Form a Business Entity: 6 Steps to Get Started
- Select a Name.
- Pick a Legal Structure.
- Select a Location.
- File Necessary Paperwork.
- Set Up Financing and Taxes.
- Hire Employees.
