Obtaining products ready, drafting a business plan, determining what type of advertising to use, and picking out a location are all high priorities for your new small business owner. Another important part of starting a business, often overlooked, entails picking the legal structure of your new business. And the selection made can greatly impact the future of your business.
Before I begin let me remind everybody that this is a brief summary of the various types of legal business entity structures available to new small business entrepreneurs. Please don’t consider this legal advice. The purpose of the guide is to educate you as to the importance of this decision – not to supply all of the information you need to make an informed decision. Please consult with a small business lawyer near you prior to deciding on a business structure choice.
Generally, there are four types of business entity possibilities, each with their own benefits and pitfalls. First is the corporation. It is widely known yet likely not substantially understood by all. Second is the limited liability company or LLC. The next is your partnership. Depending on the type of business along with the path you envision you are the business following, each entity may be the right one for you.
It demands content of incorporation, bylaws, annual meetings (in most cases), and directors and officials. Corporations have two principal advantages as a business structure. Oklahoma business entity search First, the liability of the shareholders, supervisors, and anyone else associated with the companies is limited (in most cases ) to their personal actions. What this signifies is if you own a pizza shop that is incorporated, or you just own shares in a pizza shop, and among the delivery drivers gets in a wreck and injures someone, the obligation for paying the wounded person stops at the driver (possibly) and the corporation. If the corporation would not have enough cash to cover an award, in other words, the injured individual could not try and collect the judgment from your personal bank account. This is a very important safety feature to have on your business.
The next benefit is that it is simpler to raise money with a corporation because you’ve got the ability to find passive investors through the sale of stock. Now, issuing inventory is a really complicated process, and if you are doing this from the Seattle area, you need to be sure to use an experienced Seattle small business attorney, and anywhere else you might be. But if, raising capital is simpler because you’re able to locate investors and issue stock, increasing capital for you.
The primary drawback of this corporation, in addition to the fairly complicated rules that have to be followed to maintain corporate status (significant for that shield against personal liability), is that you may just be double taxed on any profits made. Generally, when a corporation makes money they difficulty profits in the kind of dividends.
As its name implies, limited liability businesses limit the liability of its associates, exactly the same way that corporations do. If your business is on the hook to get something, the debtors can’t come after your personal accounts.
And here’s where it gets better. LLC’s are put up in order for the double taxation (along with the rules of corporations) do not apply. Rather all the business revenues and expenses run through the respective shareholders of the LLC. Meaning you get taxed once, and the business expenses accrued work against your personal income. This is a superb advantage and is the principal reason small businesses traditionally opt for this structure for their business. LLC’s are generally commanded by operating agreements, so in the event that you want to make a Seattle limited liability company, you should consult an attorney.
Partnerships are the third type of business structure, the majority of the three discussed thus far. All it requires to make a partnership is a couple of individuals to decide they want to go to a business together for profit. It sounds easy as it is. Partnerships are at their simplest provisions loose business associations. They can be shaped both orally and through written agreement. I would recommend a written agreement, if for no other reason than to specify the principles if the business venture breaks up.
Sole Proprietorship are the loosest type of business structure you can have and simply refer to you as an individual holding yourself out to do some type of service or sell some type of product. Frequently you can see businesses such as this with names like John Smith doing business as Quick Cleaning Service. There’s not any protection from personal liability and no records must create a sole proprietorship (although some states allow filing of your business name for trademarking purposes).