An individual business is a business that is not incorporated. This includes independent contractors, consultants, and freelancers. To register as an individual business, a United States Social Security number is used. Sometimes personal businesses are referred to as "solopreneurs."

Who Is Considered an Independent Contractor?

A person may be considered an independent contractor for tax purposes, dependent on certain circumstances. The distinction lies in who has control of your time and the processes in which your job is completed. If the person that is contracted to pay you only tells you what the results should be, but you have freedom over how these results are acquired, you are likely considered an independent contractor.

Typically, those required to be at a certain place, at a certain time, to complete their work are considered employees, not independent contractors.

Common examples of professions that are often independent contractors include therapists, accountants, chiropractors, and graphic designers. Those hired on a freelance basis are typically independent contractors by IRS standards and may also be sole proprietorships.

Sole Proprietorships

A sole proprietorship is when a business only has one owner that receives all the profits. If there are any problems, such as getting sued or an unpaid debt, this owner would be responsible as an individual. Contractors, consultants and freelancers also use this. It is the easiest type of business both to set up and to dissolve. A sole proprietorship is not incorporated, and business income and expenses are reported on Form 1040 Schedule C.

In the eyes of the law, a sole proprietorship and the business who owns it are not separate entities. A sole proprietor is required to report any income from the business, less business expenses. It is also required that owners of sole proprietorships pay self-employment taxes.

In the United States, setting up a sole proprietorship is relatively quick and easy.

  • While it does not require any federal filings, your city or county may require that you obtain a license if you plan to operate under a fictitious business name, or you may need to register the name with the secretary of state's office.
  • Another requirement will be to get an EIN (Employer Identification Number) if you plan on hiring employees for your business. It is also highly recommended to open a banking account solely for the business.

Most people who venture into self-employment chose a self-proprietorship of some sort. This single owner will provide any capital (or take out a loan), be the face of the company, and solely take on the risk. For a sole proprietorship, there is no formal act of foundation needed and no minimum capital requirement.

A sole proprietor is always personally liable for business debts and obligations with no limitations, even if business and individual accounts are kept completely separate. The owner's spouse can even be held accountable for business debts.

A sole proprietorship that has a turnover of 100,000 CHF or more is required to register an inscription in the Commercial Registry. For those businesses under this threshold, it is voluntary. Some professions are exempt from this requirement, such as medics and lawyers.

Those in the Commercial Registry are also required to follow the rules for Commercial Accounting through double entry accounts with:

  • Inventory
  • Balance
  • Profit and loss statement.

Even for businesses that are not registered, it is a good idea to keep good records for many reasons.

Incorporated Businesses

There are different types of incorporated businesses. Your business is a partnership if it is incorporated as a partnership. A partnership files business income and expenses on Form 1065. Partnerships are considered separate entities from their owners. A partnership must have at least two shareholders and at least one general partner who assumes unlimited liability for the business. In a partnership, all profits and losses are distributed directly among the shareholders.

Your business is a corporation if it is incorporated and you file your income and expenses using Form 1120 or 1120s. Shareholders within a corporation have the protection of limited liability. Corporations also have full control of their profits and whether they are kept or distributed.

Corporations must have at least one shareholder and be for-profit businesses. They are able to operate for an unlimited amount of time at a loss.

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