A: As a small business attorney, first, realize that business formation is not easy; there are a number of hurdles and decisions to be made. Among these are the following:
A: First, you will want to assemble a professional team to assure compliance with the complicated legal, regulatory and tax issues that will no doubt impact your chosen business.
That team should consist of, at a minimum, an experienced legal team and accounting firm.
Second, you will want to select the most suitable type of business entity suitable for your particular business.
A: There are a number of business structures that you may choose for your startup business. Selection of the suitable business entity appropriate for your business (and your needs) will determine the amount of taxes you pay and exposure to risks of liability you face. The type of structure you select may also impact the ease you have in obtaining bank loans or raising capital from potential investors. Among the most frequently used legal entities are sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, limited liability companies, and corporations.
A sole proprietorship is the simplest forms of business that exist and does not require state registration. Basically, these enable a one-person owner (including one formed by a married couple) to assume the risk of running the business, potentially using their own name for the business, without being beholding to anyone else. Typical examples are various professionals (e.g., attorneys, physicians, hair stylists, etc. that practice their professions on their own) and persons that want to form a retail business where they are the sole owner/operator (e.g., owning a pet grooming facility).
The sole proprietor need not register the business with the state. Depending on the industry and location, your city may require that you obtain a business license or permit. Moreover, if you intend to conduct the business using a name other than your own, you will need to file a so-called "fictitious business name statement" with the county in which you are conducting your business. This certification will enable you to "do business as" another name without having to create a separate legal entity.
Among the advantages of the sole proprietorship are:
The general partnership is similar in most respects to a sole proprietorship, with the main difference being that two or more people will be the owners. Typically, the ownership is divided between all the partners who share in the profits, business assets, and legal liabilities in some proportion as agreed to by the partners. However, as is the case with the sole proprietorship, these owners will be subject to unlimited personal liability for the debts of the business.
Advantages of using a general partnership for your business are:
Somewhat similar to the general partnership, in the limited partnership there is a general partner who is responsible for managing the business operations and is solely liable for the business and personally liable for the business debts. On the other hand, the limited partners are investors who, unlike the general partner, have no say in the day-to-day management of the business operations but enjoy limited liability protection from the debts and liabilities of the business.
Advantages of the limited partnership are:
The limited liability company ("LLC") has all of the positive aspects of other corporate entities, that is, there are a number of owners, generally called "members", none of whom are generally personally liable for the debts and liabilities of the business, including the so-called "manager" or "managers" if appointed to supervise the day-to-day operations of the business.
Advantages of the LLC include:
The corporation is the type of entity used by almost all publicly registered companies. Ownership of a corporation is evidenced by "shares" issued to its investors, called "shareholders", who are required to meet at least once a year to elect the governing body of the corporation, the so-called the "board of directors". In turn, the board of directors meet periodically (but at least once each year) to oversee major decisions of the persons they appoint to run the day-to-day operations of the corporation, the so-called "officers". The officers include, at a minimum, a president or CEO ("chief executive officer"), a secretary, and a CFO ("chief financial officer" or "treasurer"). Other officers that may be appointed by the board of directors include vice-presidents, chief operating officer, controller, etc.
Advantages of the corporation:
Selecting the type of entity appropriate for your business is complex and often limited by the type of business and regulations under state law. The options will be explored with the client at the initial meeting to enable the client to select and move forward with the form best suited to their business.