When you want to get a deal done, you need to make informed decisions with all the pertinent information. You need problem solvers who give practical advice by providing timely and comprehensive answers to your questions.
Choosing how to structure your new business will have ramifications that touch on many different areas, including taxation, liability, management and control, transfer of ownership, business succession, dissolution and more.
Some of the most common business entity choices include corporations, partnerships and limited liability companies, also known as LLCs.
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Corporations offer protection to officers, directors and shareholders, who typically cannot be held liable for corporate debts or negligence. Most corporations are subject to double-taxation, however, where income is taxed twice – once to the corporation and again to the shareholder. Corporations of a certain limited size can avoid double taxation by electing S Corporation status. Family-owned and closely held businesses may want to consider filing as an S Corp.
In a partnership, there is no double taxation; the partnership itself is not taxed on income and only the partners pay tax on profits. Partners are liable for debts and actions of the partnership, however, and do not enjoy the protection of the corporate shield. One solution is to form a Limited Partnership rather than a General Partnership. In this case, only the general partner(s) have liability exposure, while the limited partners enjoy protection from liability. Even this limited protection may not be right for everyone, though.
A third option is the Limited Liability Company (LLC). Members of an LLC can enjoy the liability protections of a corporation yet be taxed as a partnership. Family-owned and closely held businesses may want to consider forming an LLC, although this structure is not always optimal for franchisees or companies where the owners cannot feasibly share management and control.
An individual can also operate a company as a Sole Proprietorship. The sole proprietor has complete control over the business and is the sole recipient of business profits, as well as the sole taxpayer. Since there is no legal distinction between individual and business, both the business and personal assets of the sole proprietor are exposed to liability. Very little is required from the administrative/regulatory side to do business as a sole proprietorship.
Complete contracts avoid conflicts and avoiding conflicts protects valuable business relationships. A business without a complete contract is often risking their most valuable and most loyal relationships by not having clear terms.
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Each transaction must define the scope of the deal and establish the parties’ respective responsibilities and conditions to performance. We have the experience to craft an agreement to allocate risk among the parties and ensure that the form of the transaction meets regulatory requirements and does not trigger undesired obligations.