Thinking about starting a business? Let us help you determine the best business structure to meet your needs.
There are several options for starting your own business, including but not limited to partnerships, LLCs, or corporations.
A partnership does not have any formal formation requirements. A partnership can be formed by two people simply by doing business and sharing profits. It can be formed by oral or written agreement. Partners both own and manage the partnership. In a general partnership, there is no limited liability, each partner is liable for all the firm’s debts, and the actions of one partner are binding on each of the other partners. In a limited liability partnership, a partner’s liability is limited to their investment amount, similar to a corporation. Partnerships are more informal but less stable than corporations. For example, if a partner decides to walk away from the partnership, the partnership ceases to exist.
A corporation is an entity with a separate legal existence from its owners. Corporations possess some constitutional rights, which were expanded after Citizens United. A corporation can enter into a contract, sue or be sued, and acquire assets in its own name. Corporations issue stock to individuals which creates ownership in exchange for that individual’s initial investment in the business. Stockholders elect a board of directors. Ownership of the corporation is then separated from the management of the corporation because the corporation is centrally managed by the board.
A limited liability company, or LLC, is a hybrid organization that has characteristics of both a corporation and a partnership. It grants small businesses the “limited liability” protection of a corporation, while allowing small businesses to “pick and choose” between other corporate and partnership characteristics that best suit its business model. An LLC can be member managed, like a partnership where each member has authority, or manager managed, like a corporation where fewer people have authority. LLC members or managers are the owners of the company.
There are important questions to consider when deciding on a corporate structure, including the your overall goals and objectives, liability issues, how you want decisions to be made, and how you want to be taxed. Once an entity type has been chosen, it is important to draft organizational documents that reflect your goals and management preferences moving forward.
The attorneys and Bryan, diStefano & Mattingley PLLP can help you sort through the issues, identify objectives, and execute a plan to build your business the way that works best for you.