Choosing the form your business will take can be exciting - and daunting. While INBiz is happy to offer general information, we cannot offer legal advice. Consulting an attorney is important if your business is more complicated than a lemonade stand. However, here is some information to get you thinking about the entity type your business might take.
After a business entity has formed or been granted authority to do business in the state of Indiana, it has an ongoing responsibility to file regular business entity reports. These reports must be filed every year by nonprofit organizations and every two years by for-profit businesses.
TYPES OF BUSINESS ENTITIES
Below is a brief description of the various forms in which a business may organize under Indiana law.
Informal associations
These business associations DO NOT require filing with the Indiana Secretary of State:
- Sole Proprietorship - One person conducts a business for profit. The sole owner assumes complete responsibility for all liabilities and debts of the business. The income of the business is reported as part of the owner's personal income.
- General Partnership - Two or more individuals serve as co-owners of a for-profit business. Partnerships should operate under a written Partnership Agreement to avoid future problems. All partners are responsible for the liabilities and debts of the partnership. Partnerships enjoy single taxation. Income is reported as part of each partner's personal income.
Formal associations
These business associations require the filing of organizational documents with the Business Services Division of the Secretary of State:
- Corporation - This is a legal entity that is created by filing Articles of Incorporation. The corporation itself assumes all liabilities and debts of the corporation. A corporation is owned by shareholders. A shareholder enjoys protection from the corporation's debts and liabilities. Income is taxed twice: 1) at the corporate level and 2) at the employee level when a wage is paid or at the shareholder level when distributed as a dividend.
- S Corporation - After filing Articles of Incorporation, a corporation may seek to obtain S Corporation status for federal income tax purposes. The income of an S Corporation is taxed only once: at the employee or shareholder level. To qualify, the corporation may not have more than 75 shareholders and must meet other Internal Revenue Service criteria. The corporation must submit IRS Form #2553 to the IRS. An S Corporation is considered a corporation in all other respects and is subject to no additional or special filing requirements with the Indiana Secretary of State.
- Limited Liability Company - An LLC is a formal association that combines the advantage of a corporation's limited liability and the flexibility and single taxation of a general partnership. An LLC has members rather than shareholders. A member enjoys protections from the liabilities and debts of the LLC. Although not required by law, an LLC should operate under an Operating Agreement, which is like a Partnership Agreement. If the LLC qualifies under IRS guidelines, it may be taxed only once, like a partnership, at the employee or member level, while not having the same restrictions as an S Corporation.
- Nonprofit Corporation - This is a corporation whose purpose is to engage in activities that do not provide financial profit to the benefit of its members. Such corporations must obtain nonprofit or tax exempt status from the IRS and Indiana Department of Revenue to be free from certain tax burdens.
- Benefit Corporation - This is a legal entity that is created by filing Articles of Incorporation. The corporation itself assumes all liabilities and debts of the corporation. A corporation is owned by shareholders. A shareholder enjoys protection from the corporation's debts and liabilities. Income is taxed twice: 1) at the corporate level and 2) at the employee level when a wage is paid or at the shareholder level when distributed as a dividend.
- Limited Partnership - An LP is a partnership with at least one general partner and one limited partner. A limited partner's liability is limited to the amount invested, while the general partner (or partners) assumes all liabilities and debts of the partnership. The income is taxed in the same manner as a General Partnership.
- Limited Liability Partnership - An LLP is a General Partnership that elects to operate as an LLP, which requires a registration to be filed with the Secretary of State. Unlike a General Partnership, the partners in an LLP enjoy protection from many of the partnership's debts and liabilities. The income of an LLP is taxed in the same manner as a General Partnership.
REGISTERED AGENT
Each business entity must continuously maintain a registered agent and a registered office in Indiana. An entity's registered agent is responsible for receiving important legal and tax documents on behalf of incorporated companies, including service of process, notice or demand required or permitted by law.
The registered agent and/or office may be an individual who resides in Indiana and whose business office is identical with the registered office. It may also be:
- A domestic corporation or not-for-profit domestic corporation whose business office is identical with the registered office
- A foreign corporation or not-for-profit foreign corporation authorized to transact business in Indiana whose business office is identical with the registered office
Important points to note:
The registered office address must be a street address. A P.O. Box number is not sufficient unless accompanied by a rural route reference.
- Your business cannot serve as its own registered agent.
- You can only have one agent.
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