Starting a business can be both exciting and risky. One of the most important decisions you will make is how to structure your business. Whether you choose to operate as a sole proprietor, a partnership, limited liability company (LLC), or incorporate, there are legal and tax ramifications. Here are some of the basics on the types of business entities. We do recommend you consult with an attorney to better understand the benefits and risks of each structure before proceeding.
Sole Proprietorship
A sole proprietorship is the simplest way to start a business. The individual represents the company legally and fully. Advantages of a sole proprietorship include lower start-up costs and easier money handling; there is also no payroll if you are the only employee, and tax preparation is generally simpler. The disadvantage of this type of entity is that you are personally liable for all business actions. Your personal wealth and assets are at risk. Brinkley Walser has skilled business law attorneys who can advise you on whether or not this type of entity should be your choice as you start your business.
Partnerships
Many people will start a business as a partnership. A partnership is a business entity where two or more persons join together to carry on a trade or business. The partners share in the risk and in the profits. Each partner contributes capital or labor to the venture. A partnership files an annual return documented by financial accounting. It does not pay income tax. Instead the profit or loss passes through to the partners and is reflected on a K-1 form which is then used with your personal tax return. Brinkley Walser works closely with partners to draft strong agreements that reflect the duties and obligations of the partners so that a good working relationship can make for a stronger business.
Limited Liability Companies
LLCs are popular because, like a corporation, owners have limited personal liability for the debts and actions of the LLC. An LLC is more like a partnership, providing management flexibility and benefits of pass-through taxation. Owners of an LLC are called Members. Forming an LLC is usually less paperwork intensive but requires solid record keeping for its members. You can designate one person to run the LLC (manager managed) or the members can run it together (member managed). Because of the decisions required in the setup, strong legal advice is needed to make sure that the LLC is the best vehicle for your business. Brinkley Walser's business law attorneys are well equipped to guide you in your thought process for forming an LLC.
Corporations
A decision to form a corporation (incorporation) requires great consideration, an understanding of the types of corporations and options for record keeping for financial matters and stockholders. In forming a corporation, prospective shareholders exchange money, property or both for capital stock. The corporation conducts business, produces a net income or loss, pays taxes and distributes profits to the shareholders. A shareholder cannot deduct any corporate loss. Brinkley Walser has a long and established list of corporate clients who rely on the vast experience of the firm attorneys in making corporate decisions and policy.
The business law attorneys at Brinkley Walser work with entrepreneurs to help get their businesses started. Contact us to schedule an appointment today.
