New Businesses Formation
When a client desires to start a new business, two key issues should be discussed in all cases: (1) entity structure; and (2) ownership structure.
ENTITY STRUCTURE
An individual or individuals who desire to start any type of business venture are normally well advised to run the business through a separate and distinct business entity. Keeping a legal distinction between the business and the owners is not only appropriate because the business is truly a separate and distinct entity from its owner(s), it also serves many important purposes, not the least of which is protection from liability for acts committed by the business.
Limited liability companies and S Corporations are common business entities that usually make sense for a small business to utilize. They allow the owners to gain all the advantages of having the business be a distinct entity, while income/loss “pass through” rules allow taxes to be paid at only one level (the individual level – thus avoiding a double tax at the corporate level). Other advantages include simpler tax filings, limited corporate paperwork and the ability to set up retirement and pension plans through the entity.
Other entity structures such as general partnership limited, limited partnerships and general corporations may be appropriate under different circumstances.
For a discussion regarding entity selection, Click here.
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OWNERSHIP STRUCTURE
If a company is going to have more than 1 owner, the time to discuss ownership structure is before you establish your business. The key to any “partnership” is communication and transparency. Ownership percentage, capital contributions, what happens if more capital is needed, how the company is governed, who has the right to vote on issues and when and how future partners can be brought into the partnership, how a partner can sell their interest and to whom and what happens if a partner dies lead a list of numerous considerations that should be considered upfront.
While it is impossible to know what issues will arise over the life cycle of a business or partnership, our experienced professionals can anticipate potential obstacles given the nature of the business and spot others upon learning about the partners. Our professionals can safeguard against future issues and substantial conflict by relying on general time-tested protections upfront. Only professional advisors can truly spot and solve these issues – legal “forms” simply do not provide enough protections.
Our firm handles incorporation and preparation of operating agreement on a flat fee basis. The flat fee includes an initial consultation, preparation of all necessary documents and then a “business kick off meeting” where key legal considerations common to all businesses are discussed.
If you would like to schedule a meeting to discuss your new business, please contact us.