Byrne & Associates, PLLC, can assist you in forming a business. We offer services to assist with sole proprietorships, and create partnerships, corporations and limited liability companies. Going in to business involves risk, but certain risks can be avoided, or at the least, minimized. Contact Byrne & Associates, PLLC, to access your future business and customize the right formation to suit your needs.
This option offers no protection to the owner, but is the simplest to set up. No papers need to be filed, simply start doing business. For a small business with exposure to minimal risk, a sole proprietorship may be acceptable. However, since any lawsuit puts your personal assets including your home, car, and bank accounts at risk, most individuals want to consider a more formal business entity. If you do conduct business as sole proprietorship, but plan to do business under a different name, you must register a “d/b/a” or “doing business as” with the appropriate office.
General partnerships are a relatively informal business entity, they do not require documentation to come into formation. However, it is always a good idea to document your relationship and responsibilities with a written agreement. Similar to sole proprietorships, general partnerships do not provide any asset protection. Additionally, they can create unexpected exposure by making each partner personally responsible for debt created by either partner.
Limited Liability Partnerships
Limited Liability Partnerships require at least one general partner and at least one limited partnership. Documentation must be filed with the secretary of state in order to be properly formed. This type of partnership is best suited when someone intends to be a “silent partner” or “money man.” The general partner runs and manages the business and remains personally liable. The limited partner cannot participate in daily management and has no personal liability for partnership debts. However, if the limited partner begins to manage the business, he can lose his protection, thereby making him a general partner and exposing him to personal liability.
Forming a corporation provides personal liability protection for all of its shareholders. However, if certain formalities are not adhered to, the protection can be lost. The corporate structure is simple: shareholders own the business, shareholders elect a board of directors who oversee the long term objectives, and directors appoint officers who run the daily business. In many small businesses the shareholder is also a director and officer. Very often they are also employees. Nonetheless, the law respects the different capacities, even if the same person occupies all three positions. The key fact to remember is that the corporation is a distinct and separate entity from its shareholders. This distinction is what provides the protection. While the corporation may be liable for corporate debts, the shareholders are not.
Once the decision is made to form a corporation, there is an additional decision to make, whether to form a C-corporation or a sub chapter S corporation. For purposes of liability there is no difference between a C-corporation and an S-Corporation, it is only a tax election which can often save money. An S election is very common and advantageous for a small business with no intention of going public. An attorney at Maxwell Gold, PLLC can advise whether the sub chapter S corporation is best for your situation.
Limited Liability Company (LLC)
LLCs generally provide the same liability protection as a corporation but can have different tax consequences. It is often said that an LLC is more flexible than a corporation. While there is some truth to that, the flexibility is often minimal. Moreover, the tax liability can be more substantial than a sub chapter 5 corporation. It is important to discuss your business needs with a qualified professional, such as an attorney or an accountant, before you elect to become an LLC.
There is no best business entity for all situations, and there is no such thing as perfect protection. Contact Byrne & Associates, PLLC, and discuss your business situation. You can then weigh the initial expenses, long term costs and risks against your needs and make the best decision for you. Remember, you can lose your protection under certain circumstances. The right business entity, a good lawyer and good account can help you avoid problems before they occur. For a detailed discussion on business formation including, personal liability protection, flexibility of entities, formal requirements and basic tax considerations, please contact Byrne & Associates, PLLC, at 901-572-1419 to schedule an appointment.