Starting a new business is a very exciting and busy time. Obtaining products ready, drafting a business plan, deciding what type of marketing to use, and picking out a place are all high priorities for the new small business owner. Another important aspect of establishing a business, often overlooked, entails choosing the legal structure of your new business. And the selection made can greatly affect the future of your business.
Before I begin let me quickly remind everyone that this is a brief summary of the various types of legal business entity structures available to new small business entrepreneurs. Please do not consider this legal guidance. The purpose of this guide is to educate you as to the value of this decision – not to provide all the information you need to make an informed decision. Please consult with a small business lawyer close to you before deciding on a business structure selection.
Generally, you will find four types of business entity chances, each with their own advantages and pitfalls. First is your corporation. It is widely known yet probably not substantially understood by all. Second is the limited liability company or LLC. Oklahoma business entity search The third is the partnership. And finally, the sole proprietorship. Based on the type of business along with the route that you imagine you are the business after, each thing might be the most suitable one for you.
It demands articles of incorporation, bylaws, annual meetings (in most cases), and officers and directors. Corporations have two principal advantages as a business structure. To begin with, the liability of the shareholders, directors, and anybody else linked to the businesses is limited (in many instances) for their own personal actions. What this means is if you have a pizza shop that’s integrated, or you just own shares in a pizza store, and among those delivery drivers gets in a wreck and injures someone, the obligation for paying the injured individual stops in the driver (maybe ) and the corporation. If the corporation wouldn’t have enough cash to cover an award, in other words, the injured individual couldn’t attempt to collect the judgment out of your personal bank accounts. This is a really important security feature to have on your business.
The second advantage is the fact that it is simpler to raise money with a corporation because you have the capability to find passive investors through the sale of stock. Currently, issuing inventory is a very complicated process, and if you are doing this in the Seattle area, you need to make certain to use an experienced Seattle small business attorney, and anyplace else you might be. But in any event, raising capital is simpler because you can locate investors and issue stock, raising capital for you.
The main drawback of the corporation, in addition to the fairly intricate rules which have to be followed to maintain corporate status (important for that protect against personal liability), is that you may just be double taxed on any profits made.
Limited Liability Companys, on the other hand, have much of the advantages of corporations but without the limitations. As its name suggests, limited liability businesses limit the liability of its associates, the same way that corporations do.
And here’s where it gets improved. LLC’s are put up so that the double taxation (and the rules of corporations) don’t apply. Rather all the business revenues and expenses run through the individual shareholders of the LLC. Meaning you only get taxed once, and the business expenses accrued work against your personal income. This is a great advantage and is the principal reason small businesses traditionally choose this structure for their business. LLC’s are generally controlled by operating agreements, so in the event that you want to make a Seattle limited liability company, you should probably consult a lawyer.
Partnerships are the third type of business structure, the majority of the three talked so far. All it requires to make a partnership is two or more individuals to decide they would like to go to a business together for gain. It sounds easy because it’s. Partnerships are in their simplest terms loose business associations. They can be shaped both orally and through written arrangement. I would recommend a written agreement, if for no other reason than to specify the principles if the business venture breaks up.
Sole Proprietorship would be the loosest form of business structure you can have and simply refer to you as a person holding yourself out to do some type of support or market some type of product. Frequently you will see businesses such as this with names like John Smith doing business as Fast Cleaning Service. There’s no protection from personal liability and no documents are required to make a sole proprietorship (although some states allow filing your business title for trademarking purposes).