DIY Corporate Credit Series: Establishing Corporate Credit Under the Right Business Structure
Read Part 1 of ‘DIY Corporate Credit Series: 4 Steps to Claiming Your Company Name for Establishing Corporate Credit’
The only way to establish corporate credit the right way, is to keep it completely separate from your personal credit. That means establishing a numerical identifier for your business. No matter what business structure (or entity) you choose, it’s very important not to use your social security number as your business identifier. Instead, you need to obtain a Federal Employer Identification Number (EIN) also known as a Tax ID number for your business from the IRS.
What is an EIN? Your Tax ID number is essentially a social security number for your business. It’s how IRS identifies one business from another. You’ll need an EIN to open a business bank account, rent office space for your company, and even establish corporate credit. As a sole proprietor, you have the option of simply using your own social security number instead. But, this is very unwise as it’s always best to keep personal credit profiles completely separate from corporate credit profiles, no matter what business structure you use.
4 Types of Business Structure Options
Incorporating your business is the only way to make your business accountable for its own liabilities and debts. Sole proprietorships and general partnerships are major risks for business owners. As a business owner, you will be held responsible for any liabilities and debts, including tax issues.
When you incorporate your company, it becomes its own entity. Any liabilities and debts accrued become the company’s responsibility, not your own. Therefore, you don’t have to worry about losing your family’s savings, home or other assets due to the failure or credit debts of the business. This also keeps all debts and credit liabilities off of your personal credit reports.
The four general types of incorporated business structure options: Corporation (C Corporation), S Corporation (S Corp), Limited Liability Company (LLC) and Nonprofit Organization or 501(c)(3):
1. Business Structure: Corporations
A C Corporation, or Corporation for short, is a shareholder-owned, independent legal business entity. Therefore, the shareholders are not liable for the debts and actions of the business. Instead, the corporation itself holds legal liability for its own debts and actions.
Corporations are more expensive to establish than other any other business entity. They also come with more expensive administrative fees and complex legal and tax requirements. Therefore, most experts agree that this business structure is generally for larger, established businesses with multiple employees.
Tune in MONDAY when we continue this series with ‘DIY Corporate Credit Series: 4 Steps to Claiming Your Company Name for Establishing Corporate Credit – Part 2’…
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