If you would like to start a business, then one of the most difficult decisions is to figure out what legal form to set up for your business. These forms include incorporating, sole proprietorships and limited partnerships. It is a good idea to consult with a corporate lawyer before you make your final decision. There are pros and cons to all three legal forms. Read more about what sets these legal forms apart from the others.
This is one of the easiest and cheapest forms of business since all you need to do is name your business and get a business license. The main disadvantage is the fact that you are legally responsible if something goes wrong. Your bank accounts, home cars and all personal assets are at risk in this form of business. The cost for forming a sole proprietorship should be less than $100. Consult with a business lawyer if you are not sure which legal form to take for your company.
The two classes of partnerships include general and limited. All partners are equal in a general partnership. A limited partner is a passive investor in the company. The general partner has all the power and liability if something goes wrong. This type of legal form should be drafted by a lawyer who specializes in limited partnerships. A limited partner’s liability is capped at the amount of his or her financial contribution to the partnership. You should consult with a lawyer before determining to choose a limited partnership.
Many business owners dream of one day incorporating their business since it limits their personal liability. If something goes wrong, creditors are limited to the assets of the corporation for payment and cannot collect directly from shareholders. There are several types of corporations including limited liability, closely held corporations, professional corporations and S and C corporations.
The advantages include the limits to one’s personal liability, management and ownership can be separated as the business grows and corporate stock may be freely transferred by gift or sale. A corporation can also buy and sell property in the corporate name. There are numerous tax advantages that include profit-sharing options, pension plan options and the election of S corporation status.
Limited Liability Companies
This type of business form combines many of the advantages of a partnership and corporation without the drawbacks. The LLC business entity may offer greater tax advantages than a regular corporation. The retirement, expulsion, bankruptcy or death of one member will not end the LLC. Articles of incorporation must be filed with the state with a registered agent named for service of process. Just like a partnership, shares in the LLC are now allowed to be transferred without the approval of all other members of the LLC.