Business Formation

Business Formation Attorney

Types of Business Formations

Sole Proprietorship

Many, if not the vast majority of businesses start as sole proprietorships, it’s an unincorporated business owned by the person running it. It’s a great way to start up a. business, as you don’t have to file any sort of documents with the state. There’s money being made, a base of customers and some marketing being done. But, there’s a time when your business grows out of the sole proprietor phase and needs to make the transition and form into a separate legal entity. The reason for doing so is that if anything happens with the business and someone decides to sue, you are liable for the damages. Meaning, your assets are on the line. Whether it’s your car, house, or bank accounts they’re all on the line so it’s essential to protect them before it’s too late.

Partnership

A partnership is you and at least one other person working together and owning the business. This type of business has its fair share of risk involved; you must trust the person(s) you’re in business with if you have not yet created a legal entity between you. If something were to go wrong here and someone sues you, each party is held liable for the damages. Even if one of the partners had a lack of judgment and took out a loan that was unreasonable or did some other damaging action, both of the partners would be on the line for it and face the ramifications that follow. There’s also a partnering called limited partnership in which one of the partners takes the lead role as the general partner and the other partners fall below as limited partners. With this type of set up the general partner resumes the responsibility in the case of liability. The limited partners cannot take part in any of the management that goes into the business. It is important to have this type of set up secured at times where you feel that one person should hold the responsibilities.

Corporation

Corporations are the most conventional form of the business model. The shareholders are the owners of corporations and an elected director runs the business. Officers handle the nitty-gritty day to day functions of the business. In this business model, both the shareholders and directors are not liable for any debts or damages, instead, they are limited to the corporation's assets. It’s important to have a skilled attorney in this business process to keep the corporate assets separate from the shareholders' assets.

Licensing

You not only have to form a legal entity for your business at the state level but you might also have to follow licensing rules on the more local scale of the county and city. It all is a matter of where your business is located when determining if you will need a city/county license for the business. The type of license varies depending on what type of business you are conducting, but the business license bureau will help you get the right one that fits your needs. Not getting the proper business license will result in penalties that can rack up some steep fines.

LLCs

LLCs short for the limited liability company is a route taken by the sole proprietors who are looking to form a legal entity. The title explains all you need to know, the owners of a limited liability company hold limited liability when there are any debts and damages, they would hold the same legal responsibilities as a shareholder of a corporation would. There are also different formats in which an LLC can be run either member-managed where each member within the company has power and authority or where a manager manages the company and one person is in charge of many. The nice thing about LLCs is that the members who are running the company have a say in how the business's income is taxed whether it's as a partnership or a corporation.

S Corporations

An S corporation has elected to be taxed like a partnership. An S corporation differs from that of a C corporation because they show up on the business owner's tax returns and can give the owner some nice tax savings. It also makes business owners of S corporations exempt from having to pay corporate income taxes. Instead, the company's shareholders split the income or losses amongst themselves and record it on their taxes. But before a business can become an S corporation they must first make sure they even qualify, then once they’ve determined they can, they must file the paperwork to make it all become official.

C Corporations

A C corporation is a precursor for a business to become an S corporation, a C corporation is a standard corporation. This is owned by shareholders that elect a board of directors that will run the day to day operations of the company for the shareholders. In this business model, any debts or damages will fall onto the company and the business owners will not be held liable. The IRS has C corporations as separate taxpayers and they pay an often lower tax rate than individuals. There are two classifications of C corporations, both private and public, they differ because when they are considered public they must disclose financial information to the public and when they are private they can keep that information to themselves. C corporations also can sell stocks of their company and make some capital off of it.