Answers To Business Formation FAQs
Starting a business is a time of great excitement, and great uncertainty. Choosing the correct business entity and organizational structure is key to getting your business off to a good start, and avoiding major issues down the road. There are many facets to consider during the formation process.
Here are the answers to three frequently asked questions regarding business formation.
1. Should I Incorporate?
In most cases the answer is “yes.” A sole proprietorship opens the owner up to personal liability if a claim or lawsuit is brought against the business. Whether you form a limited liability company, limited liability partnership or corporation, by incorporating, the individual owners’ personal assets are, with limited exception, protected from any liabilities the business incurs.
2. What Entity Options Are Available?
Most businesses will form as a limited liability company or a corporation. The limited liability company is popular where the company will be owned by only a few individuals. It is relatively simple to set up a limited liability company, as well as to amend the organizational documents, should it be required. Limited liability companies are primarily taxed as a pass-through entity, meaning the profits or losses of the company pass through to the individual members’ personal tax returns.
If you elect to incorporate as a corporation, you can form an S-Corporation or a C-Corporation — both have advantages and disadvantages, which can be discussed prior to filing. Corporations require more record keeping, but provide a more diverse management structure, and are often more attractive to potential investors. The S-Corporation is taxed like the limited liability company, as a pass-through entity, whereas the C-Corporation is taxed as its own entity, and then the individual owners are also taxed.
Both limited liability companies and corporations can be formed by professionals.
3. What Is A Limited Liability Partnership (LLP)?
Registering a partnership as a limited liability partnership provides each partner similar limited liability as the owners of a limited liability company or corporation. The limited liability partnership is primarily used by professionals who do not want to be personally liable for the actions of another partner. While offering that protection, partners can still be personally liable for their own direct liability (for example, malpractice), or as a direct supervisor of a person who is found liable. Partnership agreements can also impose personal liability on the partners, which is why it is important for all partners to review and discuss the partnership agreement prior to codifying the agreement.
Speak With An Experienced Business Law Attorney
The Tarantino Law Firm, LLP, can help you get your business off the ground and keep it running for years to come. We offer skilled and accessible business law counsel for all levels of business. Get the legal support you need for your business venture. Contact us to schedule a consultation by calling 716-849-6500.