If I had a dime for every time I heard from a potential client, “Oh, I had no idea I needed to do that!” Mary called me up to discuss her business that was already up and running because she read on the internet that she didn’t need a business entity established to start her business. Big mistake, Mary!
One of the first and most important decisions you will make when starting a business is what sort of legal structure you should choose. You may be familiar with the most common types of entities, such as a corporation or an LLC, but that doesn’t mean it is the right choice for you. And what exactly is the difference between the types of entities? Beyond tax implications, there are many considerations that could affect what type of entity you ultimately decide to use.
While it may seem like a simple matter, your choice of business entity can have short-term and long-lasting effects on the business itself, so you want to choose the entity that best suits your goals and needs. You want to start off on the right foot, since you are now an entrepreneur! While your focus might be on the creation of a new business, you might not have stopped to think about things such as whether you can be liable for the obligations of the business? What happens to my business if something happens to me? Can my business continue to operate after I’m gone?
What sort of information will be important to consider?
What are the short-term goals of the business?
What are the long-term goals of the business?
What is the nature of the business?
How will the business operate?
Who is involved in the business—an owner, a manager, partners?
Where is the business going to operate?
What are possible liabilities the business could face?
How is the business being funded?
Do you want your ownership interest to be transferable?
These are just some of the things you might want to consider, along with tax implications. While there are many DIY ways to incorporate, it is still best to consult an attorney. Why, you ask? Because it is much easier to prevent problems from arising than to wait for a problem to happen and then try and fix it. Some front end investment in your new business will go a long way. I never wish I had gotten that attorney’s advice said no one ever. Well, maybe they have, but you know what I mean. All too often clients come to me AFTER an issue arises and the time and money it takes to fix it is well beyond what they could have spent getting things set up correctly. And sometimes, the end result is the last thing they wanted to have happened.
While some of these online services are great, an attorney can give you much more than any internet one-size fits all documents. An attorney’s knowledge vastly outweighs any form that is online. Rarely does a one-size fits all approach work. And unfortunately, clients don’t realize that until it is too late and they are involved in expensive litigation over something an attorney could have prevented. An attorney sees possible scenarios to protect you from and can be a trusted advisor.
What are the different types of business entities? Sole proprietorship, as a general or limited partnership, corporation, which has several different forms, or a limited liability company (LLC). I will be exploring each of these entities in my upcoming blogs.