Business Formation Services — Things to Consider
It is one thing to have an idea for a business, but another matter altogether to make it a reality. Choosing the right entity for your business — and taking the necessary steps and procedures to launch it — requires time, planning, and legal knowledge.
Legal LiabilityGoing into business entails some level of legal and financial risk. Whether it is debt, a judgment lien, or a lawsuit, you will need to be realistic about the prospect of enduring some sort of liability as a business owner. But the degree to which you will personally be liable for your business' debts and litigation depends on the business structure you use.
As a Sole Proprietor, wherein you and your business are one in the same, all of your personal assets can be up for grabs in a lawsuit or debt collection. But if you form a Limited Liability Company (LLC) or Corporation, you will create a distinct legal entity for your business that will essentially shield your personal assets from any business-related debts and legal issues. At the same time, this liability protection will come at a cost: compared to a simple and inexpensive Sole Proprietorship, an LLC or Corporation will require more time and money to form and more regulatory and tax obligations to maintain.
Think hard about how important it is for you to balance liability protection with other needs. A qualified business attorney can advise you on which entity is best for your circumstances and can handle all the steps and procedures needed to form and maintain your chosen business entity, making any option easier and more affordable than it otherwise would be.
TaxationEvery business owner has an interest in saving as much money for their enterprise as possible. While taxes are an unavoidable part of doing business, the tax burden you will face will vary based on the business entity you choose. A Sole Proprietorship will offer the most straightforward tax arrangement, since it identifies the owner and their business as indistinguishable from each other both legally and in terms of tax filing. Partnerships and LLCs are "pass-through" tax entities, meaning the income of these businesses will pass on to the individual shareholders / members, avoiding the need for a separate business income tax. Corporations must worry about double taxation -- taxes on both business income and the income of the individual owners and shareholders -- but offer a range of other tax options and potential deductions. If you plan to have less than 70 shareholders, an S Corporation can help avoid this issue altogether.
As you can see, taxes offer a whole other level of complexity for choosing the right business entity. Some structures offer more options to preserve your wealth and income than others, though that often comes at the cost of greater tax and administrative planning -- something our attorneys can help you to address.
Formation and Administrative CostsIn addition to taxes, you will also have to consider the cost of creating and maintaining the business entity itself. This factor will also need to be weighed with the benefits of the business entity. For example, a Sole Proprietorship is the easiest and most inexpensive type of business to form and maintain -- hence why it is so common -- but as noted before, it also lacks any protection against liability. Conversely, a Corporation provides an ideal shield against liability, but takes a lot more time and money to form, not to mention the continual costs of keeping records as required by law. Think hard about what sort of business owner you plan to be and how much time and resources you are willing to devote to the upkeep of your business structure -- and whether this outweighs the other considerations mentioned above.