You've worked hard, found investment or start-up capital and financing, and have a great business plan.
The next step is to actually form your business. Choosing the right legal structure for your business is critical to your future business success and the longevity of your business.
Questions in forming your business? Call us (866) 376-9135
Consilium Law, LLC Assists Clients with Business Formation & Structure
Starting a business is a big deal. You've worked hard, found investment or start-up capital and financing, and have a great business plan. The next step is to actually form your business. There are a lot of different business structures for you to choose from when forming your business, and each one carries with it a certain legal framework, particular obligations and protections as well as specific tax implications.
Choosing the right legal structure for your business is critical to your future business success and the longevity of your business. Such an important decision shouldn't be made without consulting an experienced business attorney and a qualified account, so that you can have a thorough understanding of the impact of your decision on your new business.
Business Structure Options
You have several options to choose from when forming your business entity. Below are the most commonly used business structures, and a brief summary about what each one entails.
Forming a sole proprietorship is accomplished by commencing business operations and transactions. If you start doing business without filing any additional paperwork designating a different business structure, then you have made a sole proprietorship. This business formation is easy and informal, but leaves the business owner personally at risk in the event that the business is sued.
A partnership is formed when two or more people together start a business. Similar to a sole proprietorship, no formal documents need to be filed to form a partnership, and the partnership business structure does not provide any personal protection for the partners' assets in the event that the partnership is sued. It is highly recommended that when a partnership is being formed, the partners prepare a detailed document, or partnership agreement, that defines each partner's role in the business.
Limited Liability Partnership
A more formal partnership option is the Limited Liability Partnership, or LLP, which requires the filing of certain forms with the secretary of state where your business is located. An LLP provides at least some of its partners with liability protection because the structure requires at least one partner to be a general partner (these partners run the company and are personally liable), and at least one partner to be a limited partner (these partners do not run the business and have no liability).
Corporations are businesses owned by a group of shareholders. The shareholders elect a board of directors to oversee and run the business. Shareholders are insulated from the corporation, and cannot be held personally liable if the corporation is sued or has debts. Corporations are formal business structures that require paperwork filings and adherence to certain formalities in order to maintain the protection that the corporation business structure provides to its shareholders.
An S Corporation is similar to a corporation business structure, except that income, losses, credits and deductions from the corporation are passed through the business and on to the shareholders for tax purposes. This flow-through of profits and losses is a desirable tax structure for certain businesses, and there are specific requirements that must be met in order to use the S Corporation business structure. Certain paperwork is required for forming an S-Corporation.
Limited Liability Company
A Limited Liability Company, or LLC, business structure offers similar protection as a corporation. However, the tax implications associated with an LLC business structure are different. Ownership of an LLC is more flexible than a corporation too, since other LLCs, corporations, individuals and trusts can own them.
A cooperative is a unique business entity where members of the business collectively own it. The cooperative is operated for the benefit of the people who use the services provided by the cooperative, and any profits made by the cooperative are shared amongst the members. Cooperatives are effective business structures, but the scenarios in which they are useful are often limited.
There are a number of business structures to choose from, and each one has its own benefits, legal protections and tax implications. The professionals at Consilium Law, LLC will work closely with you to identify your needs and the needs of your business and will offer you advice about which business structure is right for you.
Whether you need a sole proprietorship, a limited liability company, a corporation, a partnership, or an S corporation, we can help you.