

To accept payments from other companies, must I be incorporated? - majesticbeans

My last step is to implement a payment system and open my service to my mailing list users.  The service is aimed at large(er) companies, and the users who will sign up will be buying their own membership with a company card.<p>Do I need to incorporate?
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redtexture
No.

Assuming you're in the U.S., incorporation is neither here nor there in terms
of transactions and taking in income.

Company payments to sole proprietorships and to partnerships need to be
tracked by companies, and they are required to issue IRS form 1099 payment
statements to non-corporate payees annually, when payments are above $600, and
some companies elect to issue them to all non-corporate entities even if less
than $600.

Another commenter mentions form W-9. This is merely a request to the IRS for a
Tax ID number for some business. You can see that on the form, all of the
types of entity you could be are mere check-off boxes. You can have several
Tax ID numbers, as an individual running several separate non-corporation
(that is sole-proprietorship) businesses. There is nothing special about a
corporate form for obtaining one or more Tax ID Numbers, also called EIN,
Employer Identification Number. The businesses that pay you want your EIN in
order to issue a year-end 1099.

Corporate-ness typically involves several values (and administrative costs) to
a business. The leading one, is a limitation of liability, when things go
wrong, rather than your own assets (however small or large your own personal
assets may be): it is the corporation that is acting, not you, and the
corporations's assets are looked to remedy errors and injuries. Similarly, for
partnerships, all partners are liable for actions of their partner: this is
what makes a corporate form useful for a multi-investor, multi-partner
business. Sometimes insurance is available, and not so expensive that it can
be an adequate means to meet the some potential liabilities, sometimes not.

Then there are tax and income issues that are different than the sole-
proprietorship.

The questions you should ask your own accountant, and lawyer, and business
advisor, which you now are on notice that you should have:

1\. What particular advantages and costs come with the several typical
operating entities you could use: Corporation, Limited Liability Company
(LLC), and sole proprietorship (and partnership if you have a partner).

2\. Separate from that, what are the tax consequences of each entity, and
several Federal tax-filing-statuses: sole proprietorship, partnershp, LLC
elections, Subchapter-S, Subchapter-C taxation (LLC and corporations)?

3\. Is there any investor and partner involved, and can a non-partnership
entity aid in structuring operations, and limiting your liability from your
partner's incorrect actions?

~~~
tptacek
Well. Be a little careful. If you're an unincorporated sole proprietor of a
single-person company, many large companies will try to withhold taxes when
they pay you; it's a problem several friends of mine have run into in trying
to start consultancies and small product companies.

~~~
redtexture
The sole proprietor simply files, via his/her income tax return for the
withheld income at the end of the year. This is merely one aspect of the
panoply of issues to consider on incorporating.

~~~
tptacek
You're talking about the business owner's relationship with the IRS. I am
talking about what happens in the real world between the business owner and
their large clients, who will indeed sometimes try to withhold if they aren't
actually incorporated.

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wikwocket
I don't see the usual answer posted yet, so here it is: you should talk to an
accountant. It's their job to know this, as well as the millions of other
little things you should know about when conducting business, and the rules
vary a lot base don where you live and operate. Many good ones will meet with
you for free to assess your needs.

That said, you should probably incorporate. Incorporation requires very little
time and almost no money, and it provides varying measures of liability
protection, anonymity, professionalism, legal status, and tax advantages.

------
codegeek
Yes.

Your customers are going to be large companies. They are not going to pay an
individual for conducting business transactions. In fact, they will probably
need a W-9 [1] from you.

Also, don't forget the liability that you will have if you are not
incorporated.

[1] [http://www.irs.gov/uac/Form-W-9,-Request-for-Taxpayer-
Identi...](http://www.irs.gov/uac/Form-W-9,-Request-for-Taxpayer-
Identification-Number-and-Certification)

~~~
dangrossman
Sure they will. And a filled out W-9 looks pretty much exactly the same for an
individual and a single-member LLC. In both cases, it's the individual's
social security number on the form, not an EIN even if the LLC has one.

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ScottWhigham
Is this for a business? If so, yes, you should incorporate - there are many
advantages (tax, legal) to incorporating for business reasons.

That said, I can't imagine a scenario where a "business employee who is
entrusted with a company card" would find it acceptable to spend the company's
money paying for a personal, non-business service.

FYI - prefix your questions with "Ask HN:" and you'll often get better
visibility.

~~~
majesticbeans
I was originally tempted to incorporate for liability protection as well, also
provided that I may be stepping on the toes of someone big companies who might
cause me trouble. (they've caused trouble in the past to startups that my
lawyers have worked with)

------
seiji
Technically, no. If you are accepting credit cards from them, you can make
their credit card statement line item say whatever you want and you can
receive the money direct to your bank account (assuming Stripe usage).

If you receive the payments as an individual (as an American), you'll have
them taxed at the normal federal income tax rate, state tax rate, and local
tax rate, so you'll have to set aside 50% of your income for taxes.

If you're not sure how successful your venture will be, start off taking
payments to yourself. If you grow bigger, then put a company behind it. It's
annoying to form a corporation, maintain the paperwork on it, then end up only
processing $50/month through it.

