How Should You Structure Your New Business

The prospect of starting a new business can be exhilarating, and the idea of creating something successful is often a great joy in an individual’s life. However, it is important to ensure you are considering the various legal implications during the business formation process. Unfortunately, the process is often complex and a mistake can have long-term ramifications on a business. It is always in your best interest to seek legal advice before you start the process to ensure the smooth formation of your organization.

Business Structure

The first step in creating a business is deciding what the best business structure for your organization will be. The following are some of the most common ways businesses are structured:

• Sole-Proprietorship;
• Corporation;
• Limited Liability Company (LLC).

The two biggest considerations one must make when choosing which of these organizational structures is to understand the liability and the tax ramifications of each.

Sole Proprietorships

Sole proprietorships are considered the easiest business structures to set up. They require minimal legal work and allow owners to easily transfer interests. However, sole proprietors are responsible for all of the obligations and losses of the business. Income earned from a sole proprietorship is considered the same as self-employment income and is taxed as such.

Corporations

The two main types of corporations are C-corporations and S-corporations. The main difference in these corporations is how they are taxed. S-corporations are also subject to certain restrictions. C-corporations are taxed twice – at the corporate and shareholder level – while S-corporations are only taxed at the shareholder level. All corporations have one or more shareholders, however, S-corporations are ineligible to have more than 100 shareholders, and in most cases, the shareholders must be United States citizens. Unless otherwise noted, shareholders in corporations have decision making power. In the event that an S-corporation fails to meet the requirements as to the number and identity of its shareholders, it is automatically changed to a C-corporation.

Limited Liability Companies

LLCs provide their members with limited liability and allow owners to enjoy flexibility in their management structure. LLCs have one or more members, however, if a new member wishes to join all existing members  of  the LLC must approve. An LLC is bound by the terms of its operating agreement and articles of organization. In most cases LLCs are taxed at the member level, however, they may opt to be taxed as a  C-corporation. Managers of LLCs are not liable for the obligations or debts of the LLC.

Do You Need Help?

Starting a new business can be complex and intimidating. It is critical that you start off on the right foot and understand the importance of correctly establishing your business. While it is possible to start a business on your own, it is often difficult to understand the legal implications of your decisions. Hiring an attorney in Sarasota will ensure that all the adequate steps and measures are being taken allowing you to have time to focus on other matters as you get closer to opening your doors. If you are a business owner or have questions about starting a business, contact Suncoast Civil Law today.