|
Construction
Basic Business Practices
Timely articles covering the most pressing issues
facing construction firms in the Midwest
How to choose a legal
structure for your business
by Jody Ehrhardt
Whether you are starting a small business from
your home or opening a new, large operation, you
will need to decide which business structure is
better suited to you and your company’s needs. There are four
basic types of business structures:
sole-proprietorships, partnerships, corporations
and limited liabilities companies. The type of
structure you choose will be determined by the
type of business you own, the size of the
business and many other individual actors. To
make the best choice it is usually necessary to
seek the advice of a lawyer who specializes in
business law.
Before consulting a lawyer, however, it is a
good idea to understand your options. The first
option, sole-proprietorship, can only be used by
an individual who is the only owner of the
company. The only exception to this rule is if
the owners are husband and wife. In a
sole-proprietorship there is one very distinctive
advantage and one equally distinctive
disadvantage. The advantage to this structure is
that there is no legal requirement necessary to
form it. This means that you can create a
sole-proprietorship for little if any cost and
maintain it without further paperwork or legal
filings. The disadvantage to this structure is
that the individual that forms the
sole-proprietorship is solely responsible for any
debts incurred by the business. For example, if a
customer were to sue your company, your personal
assets could be used to pay off any judgment
against your business.
In a partnership two separate individuals must
own the business and the individuals must choose
not to incorporate. As with a
sole-proprietorship, no legal filings are
required to establish this business structure but
it is highly recommended that you at the very
least draft an agreement among all parties
involved. This document or contract can be drawn
up by the partners but it is more advantageous to
have a lawyer who specializes in business law
draw it up for you. If you choose to draw up the
contract yourself, be sure to include information
regarding the financial responsibilities of each
partner, the terms for the sharing of profits and
losses and the responsibilities in decision
making for each partner.
If you are thinking about choosing a
corporation as your business structure it is
important to know that each state sets forth its
own requirements for the formation of a
corporation. For details about these requirements
it is best to consult a lawyer.
The advantage to organizing a corporation is
that the liability for the company is limited to
only what an individual puts into the company.
This means that each individual owner does not
have to worry about his or her personal finances
or assets seized to pay off company debt.
The disadvantage to owning a corporation is
the time it takes to maintain one. In a
corporation, the company must elect a board of
directors, write articles of incorporation and
issue stock. Owners must also attend shareholder
meetings and follow all corporate guidelines
while running the business. Unless you own a
large company with multiple employees, a
corporation is usually not necessary.
Perhaps the best business structure is a
limited liability company. This structure
includes the advantages of each structure while
minimizing the disadvantages. For example, in a
limited liability company, the owners are not
held personally responsible for company debt yet
they are still able to run their company without
issuing stock or holding corporate meetings. The
biggest disadvantage is that there are legal
requirements needed to create a limited liability
company and an attorney must do the paperwork
necessary to create one.
As with all legal agreements, there are many
complex issues to keep in mind when making a
decision. No matter which type of business
structure you are likely to choose, it is best to
consult a lawyer for advice on which structure
with offer your company the best tax situation
while still allowing protection for your assets.
About the author
Jody Ehrhardt writes for
http://www.lawyervista.com,
a website where you can find a lawyer in your
city or state, including http://www.lawyervista.com/51-state-NM-new_mexico-immigration_lawyer.html
New Mexico immigration lawyers and http://www.lawyervista.com/51-state-KS-kansas-immigration_lawyer.html
Kansas immigration lawyers.
<< Back
to articles
|
