Starting or expanding a business can be an exciting time, but it can also be extremely stressful as well. Many people invest their life’s savings to pursue their dreams of starting a business. Many people also seek out financing through banks, and even through friends and family. Of course, these funds need to be paid back. So doing things right from the start can literally be the difference between success or failure. Recently a client came to me and asked, “Should I incorporate, remain a sole proprietor, or form an LLC?” She said, “I’m even wondering if I should form a hybrid company, like that new benefit corporation I read about.”
Wondering what type of business entity is right for you is a critical first step in becoming a smart business owner. In making that decision there are many factors to take into account, e.g., type of business you want to have, your short and long term goals, the costs attendant to starting the business, the required formalities for forming the business, the formalities for maintaining it, protection from liability, tax implications, and management & control issues, to name a few. These are just some of the questions you will need to decide before answering the question, What type of entity should I form?
There are many types of business entities to choose from. Not all entities are created equal. Among your choices are:
- Limited Liability Company
- Limited Liability Partnership
- General Partnership
- Limited Partnership
- Sole Proprietorship
- Benefit Corporation (only in CA, HI, IL, MD, MA, LA, NJ, NY, PA, SC, VA, VT)
- Flexible Purpose Corporation (in CA only)
- Charitable Nonprofit (with a variety of tax exemptions, e.g., 501(c)(3), 501(c)(4), 501(c)(6), 501(c)(7)
Other Questions to Consider: Once you decide what type of business to form, you must turn your attention to where.
- In what state should you form your business?
- How much does it cost, and what filings do I need to make?
- Will there be other owners besides me?
- Do I want a board of directors, members, or possibly both?
These may seem like simple questions, but in fact, they require careful consideration by business owners, taking into account the specific facts of each start-up’s particular situation. Then of course, after you form your entity, you need an assortment of contracts to get you going and which are best for YOUR needs. What tasks do you need to perform to get started? Here is a checklist with some useful first steps.
Business Law Help is Available: There can be consequences for not making the right choice. The stakes are just too high to go it alone – but you don’t have to! This is why it is extremely wise to get the best help you can when you most need it – in the beginning. There are lots of resources for new businesses, e.g., The Small Business Administration (SBA), SCORE, Coachella Valley Women’s Business Center, and so many more. Every state has programs and organizations designed to help you get started turning your wonderful business idea into a money-maker, from providing business plan assistance, to financial guidance, to workshops on all topics.
On the other hand, you may prefer to have a lawyer on your team. An attorney you can count on and speak to when you need her. A competent expert, who understands the ins and outs of business and intellectual property law issues. Make no mistake about it, ALL businesses have intellectual property law issues, from protecting your content, products, articles, videos, website content, photos; to protecting your brand name, logo, business slogans; to ensuring that your contracts are current and enforceable; to making sure you are up-to-date when it comes to legal issues (e.g., social media law, defamation law, privacy law).