The license is asking for your business structure,
so what does that mean?
There are 5 different business structures in which you can set your house cleaning business as.
- Sole Proprietor (most common)
- Corporation (Inc. or Ltd.)
- S Corporation
- Limited Liability Company (LLC)
Let's talk about the Sole Proprietor first: The sole proprietorship is the most common structure to form amongst house cleaners. It is inexpensive to form. It is usually owned by a single person or a married couple. The owner is personally liable for all business debts and may file on their personal income tax.
Next is the Partnership: Partnerships are also inexpensive to form. They usually require an agreement between two or more individuals to jointly own and operate the business. The partners share all aspects of the business (good and bad) in accordance to the agreement. It could be a 50/50 partnership or anything else agreed to in writing. Partnerships do not pay taxes, but must file an informational return. Individual partners would then report their share of profits and losses on their personal return.
Next is a Limited Liability Corporation or LLC: This is the second most common set up amongst house cleaners. It is advantageous for small businesses because it reduces the risk of losing all your personal assets should you be faced with a law suit. It separates your business and personal assets. You can also elect to be taxed like a corporation which saves you at tax time.
Next is a C Corporation: This is a complex business structure with more start up costs than many other forms. This is not a very common structure amongst house cleaners since there are shares of stocks involved. Profits are taxed both at the corporate level and again when distributed to shareholders. Lawyers are usually involved at this level.
And Finally is a S Corporation: This is more common than the C Corporation since it avoids double taxation . It is taxed like a Partnership. A business must be approved to be classified as such, so it is not a very common entity amongst house cleaners.
There are also other structures which are specific to certain states. Some of these include Limited Partnership and Limited Liability Partnership. It is a good idea to get advice from your accountant as to which would be more advantageous to your business.
Next we will talk about what sort of paperwork you need for your house cleaning business.