If someone has a great idea for a product or service, he or she may decide to start a small business in order to share that product and make a living. As part of the creation process, people need to choose a business form. Before they do this, they should meet with an attorney to make sure that they have a good understanding of each form type, as well as the ups and downs associated with them.
How an Attorney Can Help You Choose The Right Form
There are five main business structures to choose from – limited liability company, corporation, cooperative, partnership or sole proprietorship. Sometimes the nature and organization of your business will determine the formation type. For example, if you have no partners, a small staff and no investors, then a sole proprietorship structure may be your best choice. However, there are at least 10 components that can be affected by the form you choose and these include the following:
1. Taxes – Different business types are subject to different tax laws and requirements.
2. Conformity – Some business types are required by law to conform strictly to certain rules. If your business is operating incorrectly, it may be at risk of losing the protections and benefits granted under your state’s law.
3. Contracts – As a business you are likely to have contracts with employees, investors and partners. You may also have contracts for services, supplies and retail space. If the contracts aren’t handled correctly, you may wind up in the middle of an unwanted lawsuit.
4. Control – If you choose the wrong business entity, you may be required to use your personal assets to pay debts or settle lawsuits caused by a partner’s actions.
5. Capital – In order to operate successfully, your business must keep adequate records, raise money and be fiscally responsible. As such, the business structure you choose will determine the guidelines you must adhere to when you are making any kind of distributions or raising money for the business.
6. Liability – Some business structures will leave you personally responsible for any litigation instigated against the company while others protect your personal assets.
7. Autonomy – “Uniform laws” have been initiated by many states and the type of entity you choose will affect how you will need to conform to these laws.
8. Entity variety – Within the five structures listed above, there are variations. For instance, with a partnership, you can select a general partnership or a limited partnership. These entity varieties can affect your liability for the business as well as tax requirements.
9. Permits, licenses and registrations – Your business may be required to be state-registered in order to be a licensed company depending on the entity you choose. You may also need permits and licensing for the type of product or service that you are providing.
10. Multistate businesses – If you are planning to expand your business to other states, you will need to make sure that you select a form that will meet the requirements in those states.
An attorney experienced in business law can review the type of business you want to start, the industry that you are entering and your business plan. Once the attorney has a thorough understanding of your business, he or she can explain to you the different variations of business structures and use the above 10 components to help you choose a form that will be of the greatest advantage.
Protect Your Future
If you have a great idea and the money to start up a business, make sure you are protected under the right rules and regulations to avoid hassle and financial problems in the future. Choosing the right business form is an essential step on the journey to building a large, profitable company, and an attorney can help you reach that goal.”
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.