Well before an entrepreneur opens the doors to his or her first business or sells his or her first product, there are many steps that he or she must take. One of the most important decisions that must be made is the legal business formation of the company. An entrepreneur’s choice in business formation governs the personal liability of the company’s founders, how taxes are paid, the decision making authority of stakeholders, and more. If you are thinking about starting a business, it is critical that you hire a business law attorney to help you with the initial setup of your company.
Types of Business Formation
There are five main types of legal formations for a business that you should consider before filing the paperwork to start your business. The main business structures include a sole proprietorship, partnership, limited liability company (LLC), corporation, and nonprofit. In a sole proprietorship, the founder is personally liable for all debts incurred by the business and also has sole decision-making authority about how the business is run. In a partnership, the partners split the liability of the company between them and share responsibility over the running of the business while also splitting the responsibility of paying taxes.
In a limited liability company, the founders’ personal assets are shielded from liability, but the company’s assets are subject to forfeiture if the business goes under. A corporation is seen as an entirely separate entity from the founders, and the corporation is held liable for its own debts. Taxes are also paid differently with a corporation because of its status as a separate entity from the people who created it. The final option is a nonprofit 501(c)(3), which is tax exempt; however, a nonprofit must have a religious, charitable, educational, scientific, or literary purpose.
How a Lawyer can Help
A business law attorney is crucial to the initial startup and success of a new business. In addition to advising on the legal structure of a business and drafting the paperwork to properly form it, a business law attorney can help with many other functions in the early days of your business. A lawyer can help you file for intellectual property rights, such as trademarks and patents to protect your company and its products. Your lawyer can also help review and negotiate commercial leases for workspace and draft employee documents such as employment agreements and non-disclosure forms. A lawyer can help negotiate and draft contracts with suppliers and vendors to ensure that you are getting the most value out of your production line and are not being taken advantage of by others in the industry with more experience.