As previously mentioned, a small business can be identified by either the amount of employees or its annual revenue. When running a small business, it is important to remember that there are different rules to follow, whether it comes to accounting or the law. A small business is
- A profitable business with a legal structure
- Located and run in the USA
- Independently owned and operated
- Not a monopoly in its field
When starting a small business, you also need to decide whether you are a small business owner or self-employed – after all, it can affect what your profits are. If you are self-employed, you can either be a sole proprietor, part of a partnership, or an independent contractor. As a sole proprietor, you are essentially a one-man business, responsible for all elements of the business and finances without a legal entity. Being in a partnership is very similar – it essentially involves two or more individuals who own the business and act as sole proprietors without a legal entity. Independent contractors are freelance workers who undertake contract work for other businesses. In all three categories, you are not considered to be an employee. Instead, the business begins and ends with you (and your partners).
If you run a small business, then you have employees. Having employees means taking responsibility for their taxes and salary, and requires a whole new area of accounting knowledge. One of the most common business types for a small business is a limited liability company. These are companies that bring together the concept of a corporation with a partnership or sole proprietorship. LLC members are not responsible for company debts or liabilities.