Registering your small business as a legal entity protects your personal property from liability. Having a separate entity for your company may also carry tax advantages.
Oregon small businesses can opt to form as one of several legal structures, each with unique benefits and disadvantages. Before forming your Oregon business, consider the tax and financial implications of each structure.
If you have your own business without partners or employees, you can form a sole proprietorship simply by registering an assumed business name. However, this entity does not shield you from personal liability for lawsuits or collections against your business. You report income and expenses for the business each year on your individual tax return.
This entity is like a sole proprietorship, but has two or more owners. These owners share personal liability and divide the debts and profits of the business equally. To form a general partnership, register your assumed business name and establish a legal partnership agreement that details the rights and responsibilities of each owner.
Limited liability company
An LLC can have one or more owners, called members, who share the profits and losses of the business equally. This type of entity offers the benefit of limited personal liability for legal judgments and collections against the business, which protects assets such as your home and vehicle. LLC members can choose taxation as a partnership or as a corporation. To form an LLC in Oregon, you must file Articles of Organization and create an LLC agreement. Each year, the LLC must file a report with the state.
An Oregon corporation consists of one or more shareholders who elect a board of directors to run the corporation. The directors appoint officers to run the day-to-day business affairs. These businesses pay a corporate tax and shareholders take dividends as income. Each individual reports dividends on his or her individual tax return.
Experienced legal and tax professionals can provide detailed insight depending on your situation.