As a small-business owner you will be faced with many important decisions including what business structure to use in your company formation and organization. The following suggestions may help you decide if you choose a limited liability company (LLC). All 50 states allow the formation of the LLC.
Articles of Organization
If you're currently doing business as a sole proprietorship or partnership, you're fully liable for all business debts, including those incurred by your partners. When you create an LLC, you take the first step in business protection planning. A properly formed limited liability company creates a legally enforceable layer of protection between you personally and your business. LLC is now the most common small business entity chosen. Basically, lawmakers and the Internal Revenue Service got together and made decisions to create the ideal legal and business entity for business - the limited liability company. The law does provide some protection, but in order to get that protection, the company owners need to follow certain requirements. Failing to follow those requirements opens the individual owner up to liability of the company. This is true no matter what state you use to start your LLC. Your lawyer can address your specific situation. You will have to file articles of organization.
Honor the separation between yourself and your business.
If you are careful, you can take advantage of the protection you have obtained by organizing an LLC. You may become personally liable to a business creditor if you mix business and personal debts. So make sure your entity paperwork meets all tax and legal requirements. And when you sign contracts, do so as an officer of your LLC. For example: "Joe Jones, as Managing Member of Acme LLC." Your lawyer can address your specific situation.
Insure common risks.
Limit your liability for personal injuries and property damages by having sufficient insurance. You won't have to pay out of your own pocket if the insurance coverage is sufficient to pay such damage claims. Your insurance agent can tell you what kinds of special coverage may be available for your type of business, such as general liability, E & O and rental coverage to name just a few. Your lawyer can address your specific situation.
It is highly recommended to have an the operating agreement which can help define your company ownership, responsibilities, and ownership changes. Your lawyer can address your specific situation. Most states do not require the filing of an operating agreement, but it is a good idea to prepare an operating agreement, particularly where the LLC has more than one member. It lays out financial and management rights along with responsibilities of the LLC members. It answers questions such as: who contributes what if the LLC needs more capital, when and how business profits will be distributed, under what terms members can leave the LLC.
Talk with your lawyer. Your lawyer can address your specific situation. And, good luck in your new business.
I would not recommend a sole proprietorship. Because it is relatively inexpensive and simple to set up an LLC or Corporation I would recommend dong so. In my opinion, the costs involved in setting up an LLC or Corporation is well worth the protection. Keep in mind that regardless what legal entitiy you ultimately decide on, you need to comply with local city, county, and state rules (i.e. obtaining a proper business license, etc.). Should you have additional questions or would like to discuss in more detail, please feel free to contact me.
Douglas R. Coenson, Esq.
Visit www.sunbiz.com to view frequently asked questions and also for all of the information that you will need to incorporate your business. You can do it all online!
Ms. Lamie is licensed to practice law in Florida. The response herein is not legal advice and does not create an attorney/client relationship. The response is in the form of legal education and is intended to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that, if known, could significantly change the reply and make it unsuitable. Ms. Lamie strongly advises the questioner to personally confer with an attorney in order to insure proper advice is received.