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12.18.2014

Informal association business formation in Indiana

Indiana is supportive of business endeavors by entrepreneurs because many believe that the economic prosperity of the state is hugely dependent on attracting new investors. Therefore, Indiana’s local government offers support to all entrepreneurs who express an interest in starting a business in the state. In order to aid such entrepreneurs, the state has a clear set of guidelines for starting a business.

The first step that an entrepreneur needs to take is selecting the business type. In Indiana, an entrepreneur can choose to have a “formal” or “informal” association. While the “formal” associations must register with the Corporations Division of Indiana Secretary of State, the “informal” associations do not need to do that. Interestingly, deciding to start a “formal” association has its advantages and legal consequences.

An informal association does not need to register with the Indiana Secretary of State and can be one of two types:

  • “Sole proprietorships,” where one owner operates the business for profit. In fact, the same person assumes all responsibilities, debts and other liabilities related to the business. The income generated from the business is considered to be a part of the business owner’s income and taxes are paid by the business owner.
  • “General partnerships,” where two or more people run a for-profit business. There needs to be a written “partnership agreement” in order to avoid disputes and all responsibilities, debts and liabilities are equally shared by all partners. The income generated by partnerships is considered to be the partners’ income and taxes are paid by the partners themselves.

At every step of business formation, a number of legalities are involved. While many entrepreneurs are aware of those legalities, because of their prior experience, there may be entrepreneurs who would have a number of doubts. This is especially true if that entrepreneur is from a different state. Considering such issues, it may be a wise decision for business owners to get more information, not only through the business formation stage but also through the business planning stage and beyond.

Source: IN.gov, “An Entrepreneur’s Guide to Starting a Business in Indiana,” Accessed on Dec. 16, 2014