“To
believe your own thought, to believe that what is true for you in your private
heart is true for all men – that is, genius.”
Ralph Waldo Emerson, Self-Reliance (1841)
Over the years, the Powell Law Firm has been
privileged to be selected to serve many aspiring entrepreneurs with the launch
of their new businesses. These businesses have included manufacturing concerns,
retail businesses, restaurants, financial enterprises, and construction firms.
They have ranged from purely local businesses to enterprises that have been
national in scope. Because of the long
standing experience which we have had with new businesses and because we are
dedicated to our new business clients, we are in the special position to assist
you in creating your new business.
All of these undertakings have carried with
them the dreams of the individuals who created them. Many of these concerns have thrived, but unfortunately,
we have watched some be abandoned by the very entrepreneurs who had successfully
launched them. It has been – and is – our
earnest goal that each of the new businesses that we assist be successful in
achieving the goals of the enterprising person who first had the courage to act
on his or her dream. There are two initial keys to the success of a new
business.
The first key for a new enterprise is to get
good, personal legal advice at the time of creation of the business, as well as
at critical junctures of its development, from an attorney who knows and
understands your dreams. This cannot be short circuited by “how to” books or
unreliable assurances by internet sources. Expensive mistakes are often made by
business owners who try to save a few dollars in legal fees.
To ensure the success of your new business,
it is important to wisely consider which legal structure you wish to utilize.
Once that decision is made, all of the structure should be promptly put in
place to ensure business success. This short article will only focus on the
most common legal structures that can be adopted by a new business. Those are:
•
Sole Proprietorship: This type of business is the most popular
business entity in the United States. It usually consists of a single individual
who is ultimately responsible for the business. This type of enterprise can be
risky because all liabilities are personally assumed by that individual.
• Partnership: A partnership is formed when two or more
people, or other business entities, decide to jointly undertake a business. They
will jointly share in the profits, losses, and legal responsibilities of the
business. If the business is solely for one task, it is often called a joint venture.
Partnerships of all types should always have a written partnership agreement
which clearly sets forth the responsibilities of the partners. State statutes
and case law set forth the content of these agreements.
• Regular
Business Corporation: Corporations
are formed to help the founders avoid personal liability for the actions of the
corporation. State law usually requires that the corporate name must include
the words “corporation”, “incorporated”, “company”, “limited”, or their
abbreviations. Regular business corporations should not be confused with more
specialized professional businesses which will not be discussed in this
article. Corporations must always be registered with the Secretary of State for
the state in which they are incorporated and provide for the issuance of stock,
even if there is only one owner. Regular corporations are also required to
follow certain “corporate formalities" set forth in state statute in order
to shield the incorporators from personal liability. An IRS Subchapter S election is available to
pass certain tax savings onto the incorporators.
• Limited
Liability Corporations (LLC):
This type of business was created to combine the protections that corporations
enjoy with what was perceived to be greater flexibility of a sole
proprietorship or partnership. Like regular corporations, limited liability corporations
must also follow certain “corporate formalities" set forth in state
statute to avoid personal liability. LLC’s
are increasingly popular with small businesses because they allow the pass
through taxation of business profits while still protecting the owners from
personal liability.
•
Non-profit Businesses: There
may be certain instances where the new business
is not set up to make a profit, but instead to work for what the
founders believe is some social good. To avoid personal liability, these are
often set up as not-for-profit corporations. Like regular corporations and
limited liability corporations, certain “corporate formalities" should also
be followed with not-for-profit businesses.
This is especially true if the company is seeking charitable 501(c)(3)
status with the U.S. Internal Revenue Service.
Successfully creating the legal structure for
your business is only the beginning. The second initial key to success is the
development of written business and marketing plans that clearly set forth the
vision and goals of the enterprise. Without
this step, a new business is unlikely to succeed. All employees of the business
should be aware of these plans, and even participate in their creation under
certain circumstances, especially if they are being created after the business
has been launched. There are many resources available to assist with this step,
including some attorneys. Only through the implementation of this second step
can substance be added to the legal structure, thereby helping your dream
become a success.
No comments:
Post a Comment