There are several things a successful marriage has in common with a successful business. Both take a lot of hard work paired with a commitment. Operating a business as a couple can have some challenges, but it can also be a great option in the right situation. If you can balance your personal and work lives, it could make both more rewarding.
Choosing the Right Business Entity
There are tons of family-owned businesses across the United States. About one and a half million businesses in the nation are run by married couples. You may already know how your skillsets work together, which can play into the right structure for a business.
If both people are going to be owners and take part in the management of the business, a corporation, limited liability company (LLC), or a partnership are all solid choices. One person can take on more of the work if that’s what works best for you as business owners and a couple.
Tax Implications of Owning a Business
S corporations, LLCs, partnerships, and sole proprietorships are all pass-through businesses. That means there is no corporate income tax. The profits pass through the owners to be taxed on an individual level. For joint-owned businesses, each of you pays your share on your normal tax return.
If one of you owns the business and the other works there, the owner handles the business taxes while the other pays income taxes on their salary. Co-owned businesses are considered partnerships unless they are a corporation. However, married couples with a joint business can file the taxes on separate forms.
It’s important to have a contract in place even with a business between spouses. While you may trust the other person, you never know what may occur in the future. Having everything in writing protects each person moving forward. You should have an agreement that explains the management structure, process for adding new members, ownership percentage, indemnification, and process for leaving or ending the business.
In situations where one person is the owner and the other an employee, a contract should be in place about pay and benefits, job duties, dispute resolution processes, and other employment terms.
The initial stages of opening a business with a partner can be uncomfortable as you are treating a spouse as a business partner. However, the right written rules are put in place to show that each of you is serious about the business. Contact the lawyers at Bell & Shah to assist with the contracts to make sure everyone is on the same page.