Are you an entrepreneur with a fresh, new, and creative idea? Are you interested in starting a business? If so, this can be a wonderful and exciting time; it can also be stressful, and filled with unexpected hurdles. Knowing the legal steps to take can shave years off your learning curve. Knowing what to do can also reduce unwanted frustration.
Corporation or LLC?
Recently a client came to me and asked, “Should I form a corporation, 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.” After a lengthy discussion based on the specific facts of her situation and in discussion with her CPA, it was suggested that she consider S-incorporation.
For you, some of the questions you will need to answer are: should you have a formal business entity? If so, what type (S-corporation, C-corporation, LLC, partnership)? If you are a professional services business, does the law of your state impose restrictions on the type of entity you can form? If you form an entity, where should you organize or incorporate? So many questions face a new business owner. Things to take into consideration when selecting a entity type are taxes, management and control, and liability. Each of these requires thoughtful consideration on your part.
Management and control? Liability Protection? Taxes?
Pondering on what type of business entity is right for you is a critical first step in being 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, just to name a few. These are just some of the issues you will need to address before answering the questions: What type of entity should I form? Should I go the way of incorporation, form an LLC, or consider some other business entity?
- In what state should you form your business?
- How much does it cost and what filings do you need to make?
- Will there be other owners besides you?
- Do you want a board of directors, members, or possibly both?
Perhaps you desire financing through banks, friends and family, angel investors, and even crowdfunding. Of course, in many cases these funds need to be paid back. So doing things right from the very start can literally be the difference between success or failure. Part of doing things right is forming the right type of business entity. An entity that is appealing to financiers.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)
- Social 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 and where to form, consider the money.
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 with 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).
If you’re interested in speaking with Francine, she will provide a complimentary consultation.