Leaving Your Small Business Formation Details to Chance Could Cost You!
As a small business owner, your focus is running a company. However, before you can do so, it is critical to choose the right entity to define your operation. Business formation is one of the first steps that can have an impact on how you operate from day to day. Luckily for you, the attorneys at McLane & McLane law firm can help.
Understanding the Options
The IRS provides a list of the five most common entities:
- Sole proprietorship. There is no formal documentation required to set up this structure. You have full control over the business as well as total liability for any operational hiccups.
- Partnership. When you have a partner, you may choose to set up a partnership. Doing so calls for certain documents to be prepared and filed with the Secretary of State, as well as potentially separate documents, such as an operating agreement, that specifies the responsibilities and liabilities of each partner.
- C-Corporation. You pay taxes at the corporate rate. If you are dealing with large numbers of shareholders, consider this setup.
- S-Corporation. Tax rules are different for S corporations. You pay self-employment tax on salary. Also, there are some restrictions on your setup. For example, you can only have 100 shareholders.
- Limited Liability Company. For taxation flexibility, the LLC looks attractive. Moreover, this structure protects the members of the company from full liability regarding the risks of operating the business.
Why Getting Your Business Formation Right from the Start Matters
No matter what the folks at the small business mixer said last week, one structure does not suit everyone. Because every small business is different, it is vital to approach your business formation with individualized needs in mind. Moreover, thinking long-term is of importance, too. Where do you want to go with the business?
Some business owners have no interest in issuing shares. Others do not want to take on partners. Still others may not be comfortable operating a company that generates liabilities that they might not be able to meet. Another issue to consider is the product or service that you will be offering. Make a mistake here, and it is possible to open yourself up to liabilities you did not anticipate.
Working with an Attorney to Make an Informed Choice and File the Paperwork
You do not have to go it alone when choosing your business’ structure. Work with an attorney who understands the needs of small business owners. Sole proprietors may find that they can do well with a limited liability company’s protection when their products or services could give rise to legal responsibilities down the line.
When multiple individuals form a business, the discussion usually involves the choice between partnerships and corporations. And even there, the nuances of the businesses needs dictate the layers of protection you require. The attorneys at McLane & McLane can explain your options in plain language. Find out what you need and what you do not require at this time. From there, make an educated decision and get the paperwork taken care of the right way. Contact us today to schedule your appointment!