Starting your own business is an exciting time full of promise and opportunity. But before your new start-up can hit the ground running, you must make some very important decisions with regard to business formation. The structure you select will have a profound effect on issues ranging from the paperwork you must submit, to the degree of liability you will assume, to how many shareholders your company will be permitted. Creating a solid and organized foundation now will allow your new company to prosper in the future, with the added benefit of reducing your risk of exposure to litigation.
At Bellatrix PC, our knowledgeable and experienced business formation attorneys are prepared to help you address all legal aspects of forming a new entity. Our legal services range from helping employers ensure compliance with labor laws, to negotiating contracts and transactions on behalf of business owners, to defending companies against lawsuits brought by employees, independent contractors, and clients. We are committed to empowering new businesses with the legal tools they need to foster growth, minimize costs, and maximize efficiency in daily operations.
To start discussing your goals in a private consultation, call Bellatrix PC at (800) 449-8992 today. Let’s start talking about how we can help your new company succeed.
Forming a Company: Types of Legal Structures
You have a few options to choose from when it comes to selecting a formal legal structure for your new entity. No single structure is “superior” to the others: each comes with its own unique set of pros and cons, and a structure that would be completely inappropriate for one organization might be ideal for another.
Our employment attorneys will sit down with you to explain the rights, responsibilities, benefits, and drawbacks associated with each structure, so that you can make an informed decision which serves your best legal and financial interests. For now, let’s begin by comparing the basic qualities of each structure.
Once a popular choice, the sole proprietorship has largely fallen out of favor as this structure offers neither separation of funds nor any legal protection against liability to the owner. Realistically, only the smallest of entrepreneurial pursuits will comfortably operate under a sole proprietorship banner. If you are planning on expanding your organization to include employees besides yourself, a sole proprietorship is probably not the right option for you.
Partnerships: General Partnerships, LPs, and LLPs
Partnerships can take many forms. Despite the connotations of the word “partnership,” these structures can actually have more than two partners.
In a general partnership, two or more individuals join together to create a company. General partnerships neither protect company assets nor shield the owners from liability, which renders them ineffective for many new businesses.
While the federal government and most jurisdictions do not require a formal operating agreement, failure to create a written agreement is akin to tacitly summoning disaster in the event of a partnership dispute. Ideally, a partnership agreement delineates each partner’s role in the organization’s daily operations, as well as financial rights to company profits. However, both parties are also bound to third-party agreements made by either party to suppliers, employees, etc. except under some limited and special circumstances.
In a general partnership, all partners share approximately equal involvement in liability and daily operations. By comparison, a limited partnership, or LP, involves a general partner who has greater involvement at the cost of increased personal liability, and a silent partner who has reduced involvement and liability. Therefore, unless the general partner is protected under some other formal structure, liability will accrue to the general partner, thereby placing the general partner’s personal assets at stake.
A limited liability partnership, or LLP, is the silent partner partnership. In an LLP, there are no general partners. Instead, all partners share limited liability for debts incurred by the business. If your business is being bankrolled by a partner with more collateral than you can personally access, he or she will likely want you to sign a limited liability partnership agreement, or LLP agreement.
Corporations: S-Corps, C-Corps, and LLCs
Corporate variants include S-Corporations, C-Corporations, and the limited liability company or LLC. These structures enjoy great popularity among many entrepreneurs due to their considerable protections against liability. Incorporating is only slightly more difficult than setting up a partnership, or applying for the business license and permits you would need to operate a sole proprietorship, but the benefits and the protections are orders of magnitude greater.
Under these types of structures, the business owner is generally not considered personally liable for the actions or debts of the business. Under normal circumstances assuming the absence of fraud, if the LLC owes a supplier money, the supplier cannot pursue the owner’s personal funds and assets to satisfy the debt.
These structures prove effective and appropriate for many entrepreneurs. Such a structure might be particularly beneficial if you are thinking about starting separate but related businesses in the future, as the failure of one organization will not “domino” into the others.
Business Formation Requirements
The business formation lawyers at Bellatrix PC will take care of every step of the process on your behalf, including any special requirements which may apply. We will discuss your immediate needs and long-term goals, educate you on which entities limit personal liability and minimize tax obligations, and advise you regarding which entity type would be best suited for your objectives.
Once we have determined which structure would offer your new company the strongest legal and financial advantages, our legal team will handle all of the following steps:
- Reserve the company’s name.
- Obtain an EIN (Employer ID Number) for the company.
- Draft and file articles of incorporation or organization.
- Draft the operating agreement and bylaws.
- Serve as the registered agent for the entity.
- Draft and review contracts with potential vendors and clients.
- Negotiate commercial leases and educate you on tenant’s rights and responsibilities.
- Draft employment agreements, non-disclosure agreements, arbitration agreements, and/or employee handbooks, while ensuring your policies comply with state, federal, and industry regulations.
There are many more steps besides these that you must take to start up a business legally. We have a free guide for you: How to Start A Business… Legally: A Quick and Easy Checklist. Follow the link to get it or call the business law attorneys of Bellatrix PC at (800) 449-8992