Which Indiana Startup Business Will You Decide?
If you've just decided to form an Indiana startup, your next choice to make is probably
what type of business you should form. But how do you decide whether a corporation,
LLC, or even a sole proprietorship best fits your needs?
Let's take a look at a few of the more common business types so that you can make
an informed decision on what kind of Indiana startup is best for you.
Assumed Business Name
In Indiana, assumed business names are available for individuals and incorporated
businesses alike. These assumed business names are registered with the Corporations
Commission of the Indiana Secretary of State if the owning entity is a corporation
or LLC, and with the County Recorder's office if the assumed business name is to
be owned by an individual (otherwise known as a
sole proprietorship DBA) or an unincorporated partnership.
If you already have a corporation or LLC, but you want to conduct business as a
name other than your business's legal name, you might also decide to register an
assumed business name. With an assumed business name, you're able to do business
under a name that might be more appropriate for your new products or services without
having to change the name of your corporation or LLC entirely.
Incorporate in Indiana
If you'd like to incorporate in Indiana, you have a choice between a
C corporation and an
S corporation. While both of these types of entities are corporations
and they are both registered by filing Articles of Incorporation and both are governed
by corporate bylaws, there are inherent differences between the two types of corporations
that you need to be familiar with before incorporating in Indiana.
Incorporating gives you the ability to deduct 100 percent of your health insurance
premiums. It also provides owners with limited liability; in a sole proprietorship,
the owner is liable for the debts and obligations of the business—but when
you form a corporation (or LLC), you are not personally liable (except in cases
where fraud was a factor or any other case where a corporation does not follow certain
By default, when you incorporate in Indiana, you will be forming a C corporation.
This type of entity has a unique tax structure: the C corporation is taxed a corporate
income tax, and the individual owners also pay income tax on any profits distributed
to them. This is known as "double taxation."
A C corporation, however, is also quite flexible when it comes to ownership: there
can be an unlimited amount of shareholders, and those shareholders are not required
to be US citizens or resident aliens. A C corporation is also allowed to issue multiple
classes of stock.
An S corporation differs from a C corporation in many ways. There can only be 100
shareholders or less in an S corporation, and any shareholders must be US citizens
or legal aliens. An S corporation is only allowed to issue one class of stock.
But, regardless of these restrictions, some smaller organizations that incorporate
in Indiana and do not find the rules of ownership prohibitively restrictive may
decide to form an S corporation to take advantage of its tax structure. An S corporation
is considered a "pass-through" entity and is not taxed at the corporate level. Instead,
profits are taxed at the individual level alone as personal income tax, thus avoiding
a C corporation's "double-taxation."
If you'd like to form an Indiana LLC, the process is a similar one to starting a
corporation: you will register with the state, only your formation document will
be called Articles of Organization. The document that guides an LLC's operations
is called an LLC Operating Agreement, sometimes an LLC Member and Control Agreement.
An LLC (or limited
liability company), not surprisingly, also provides limited liabiltiy to owners.
Only when the business or an owner has acted improperly can the courts pierce the
corporate veil and seize the assets of that owner to repay debts or obligations
of the corporation.
An LLC is similar in many respects to an S corporation: it is another pass-through
entity, avoiding double taxation. An important distinction between an S corporation
and an LLC, however, is that while an S corporation is required to distribute its
income in a manner directly proportional to each individual's investment (a shareholder
that contributed 50 percent of the capital will receive no more and no less than
50 percent of the distributed profits), an LLC's Operating Agreement may specify
any ratio for the division of profits that the members agree on.
For example, if you and I start an LLC in Indiana, we might decide that I will put
up 75% of the profits, but you will have a more active role in running the business.
We might decide to split the profits 50/50 in light of this, rather than 75/25,
and we would be able to sign an agrement to that effect.
Foreign Qualification in Indiana
In most cases, any corporation registered in another state and intending to transact
business in the state is required to apply for foreign qualification in Indiana.
(This requirement does not apply to certain types of businesses, such as banks,
credit unions, trust companies, and others; more information can be found in the
Indiana Code sections 23-1-49-1 and 23-17-26-1.) This is more commonly known as
a foreign corporation.
It is up to your business to determine whether its activity in the state would be
considered "doing business"; it's important to talk to a lawyer or legal advisor
if you're not sure whether or not your corporation or LLC is required to apply for
foreign qualification. Keep in mind that if you do register in the state, your business
will be required to have an Indiana
Indiana Nonprofit Corporation
A nonprofit corporation
is one in which profits are not distributed to shareholders, but rather are invested
back into the corporation to improve its efforts or into the community.
There is a little bit of confusion surrounding nonprofit organziations: you can
form an Indiana nonprofit corporation by filing nonprofit Articles of Incorporation—but
in order to act as a tax exempt organization, able to accept tax-deductable donations
and other benefits privided under section 501c3 of the IRC, you must first apply
for 501c3 status with the IRS. Until the IRS accepts that application, you are an
Indiana nonprofit corporation only and should not act as if you are a 501c3.