While most new companies begin with great ideas, the process involved in actually establishing a new business proves a bit more convoluted. One of the most important first steps for any new business is to determine what type of legal business structure the company will adopt. How a company incorporates ultimately affects many areas, from how the business must pay taxes to who is ultimately liable in the event that it gets sued. This content is intended to offer a condensed look at establishing a business along with information about some of the benefits and downfalls associated with establishing each type of legal business structure.
Establishing a Partnership: An Overview
Partnerships are usually among the easier types of businesses to create because there aren’t any associated costs and little, if any, red tape involved. To establish a partnership, potential business owners must choose a name and make sure it isn’t already taken, register that name, and then draft and sign a partnership agreement, which may dictate anything from how the partnership can be dissolved to how the company’s profits are to be dispersed among the partners. Generally, the more comprehensive the partnership agreement, the better, because it will more than likely come in handy when disputes among partners inevitably arise somewhere down the line. In the event that disagreements among partners arise and a partnership agreement was never executed, companies are usually bound to any rules set in place at the state level. The Secretary of State must also be informed about the new partnership, particularly if the business is a limited partnership or limited liability partnership, and then the business owners must secure licensure and, depending on the type of business, additional permits through city, state and federal channels.
Establishing a Corporation: An Overview
Establishing a corporation can be beneficial, but the process involved in doing so is also often tedious. As is the case with any legal business structure, the exact process involved in launching varies based on the type of business at hand. Some simply require more permits, licenses and so on than others. In most cases, however, those who are looking to establish corporations must decide on a business name and make sure it isn’t already in use, and then register that name and determine where to incorporate the new business. Keep in mind that some states have specific requirements when it comes to naming businesses. Next, it’s time to determine who the company’s directors will be and then draft the business’s articles of incorporation, bylaws and shareholder agreement. After the business’s articles of corporation are filed with the Secretary of State’s office, it’s time to open a separate bank account for the business, secure any necessary licenses and comply with any other existing regulations that may be in place at the local, state or federal levels.
Establishing a Limited Liability Company: An Overview
As the name implies, a limited-liability company, or LLC, offers an additional level of protection to its owners in terms of liability. To establish an LLC, entrepreneurs must choose a business name and determine that it isn’t already in use, register that name, and then draft and sign an operating agreement and articles of organization. Next, it’s time to secure any necessary licenses or permits (again, expect these to vary broadly based on the nature of the business) and file them with the appropriate local, state or federal channel. Another important step in establishing an LLC is to open a separate business bank account. While an LLC does help protect business owners from certain liabilities, a separate bank account is critical in ensuring that this happens.
Establishing a Nonprofit: An Overview
Among the primary factors that distinguish nonprofit organizations from other types of businesses is the fact that nonprofits are working with a particular cause or mission in mind, such as one that serves a charitable, educational or religious purpose. Another key difference that separates nonprofits from other business types is that they are tax-exempt. Nonprofits can be incorporated, but they don’t have to be, and the decision to do so again generally depends on the nature of the business. In the event that a nonprofit incorporates, the appropriate paperwork must be filed with the state. The next step is to file for state and federal tax-exempt status, and then it is time to create bylaws and appoint nonprofit directors. Generally, the first meeting involving the chosen board of directors is what gets the nonprofit off the ground. The process of forming a business can be relatively simple or far more complex, depending on local and federal regulations and the nature of the company at hand. This content is intended to offer an overview of the general processes involved in forming a business.
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