Just as your home needs to be built on a solid foundation so as to withstand the forces of Mother Nature, so, too, does your business need to be built on a solid foundation so as to withstand the business climate. This means that the more thought you put into what type of entity your business will be, the better off both you and your business will be.
In general, you have the following entity choices when establishing a new business, that each carries its own advantages, disadvantages, risks and rewards:
- Sole proprietorship
- General partnership
- Limited partnership
- C corporation
- S corporation
- Limited liability company
Some very important considerations you likely will want to ponder include the following:
- How much control do you want over your business?
- How much risk are you willing to undertake?
- How many of the daily operational decisions are you willing to undertake?
- Do you want limited liability for your personal assets?
- Are you willing to share the profits of your business with others?
- Are you willing to share information about your business with others?
- How do you want your business to be taxed?
- What is your level of entrepreneurial ability?
- Do you need financing, and, if so, how do you plan to raise capital?
- How easily do you want to be able to expand your business?
- How easy do you want it to be to sell your business?
- Do you want your business to “die” when you do, or do you want it to be able to continue without you?
- Are ease and cost of formation important to you?
The Necessity of Obtaining Legal Advice
Obviously, starting a new business entails far more than just having a sure-fire idea for a new product or service. The above and other considerations are not meant to discourage you from going into business for yourself. Rather, their purpose is to temper your excitement and enthusiasm with real-world thinking so you can make a sound and informed decision about your business’s legal structure.
This is where your business lawyer can be your greatest ally. Not only can he or she answer all your questions, but he or she also likely can come up with considerations that you never thought of. That’s exactly what business lawyers do: attempt to cover all the bases ahead of time so that once their clients’ businesses are formed, each client can devote his or her time and effort to running the business rather than worrying about legal and tax issues.