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.
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?
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.
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.
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.
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.
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.
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.
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.
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)
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.
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?