In the United States, there are several types of business structures from which to choose when establishing a business. The one you select will depend upon several factors, including how many owners there will be. For the simplest business structures, you might be able to handle much of the paperwork and details yourself. For more complex structures, you’ll need a lawyer. Even if your business consists only of you, hiring a lawyer to advise you can ensure you follow the law and have everything you need to get your business off to the right start.
Sole Proprietorship
This is the type of business structure you’ll most likely use if your business consists only of you. For example, assume you’re a freelance professional. You not only receive all of the company’s profits, but you’re also liable for all of its debts and losses. You don’t need to do anything formal or legal to establish this kind of business. However, you may still need to obtain certain licenses, permits or other credentials depending on what type of business you will be operating.
Limited Liability Company
Also known as an LLC, this structure combines certain elements of a corporation and a partnership, and can consist of one or more owner members. Each member reports the company’s profits and losses on his or her individual tax return. To form an LLC, you must choose a business name, file articles of organization. An operating agreement is also highly recommended. You’ll also still need the appropriate business licenses and permits.
Cooperative
A cooperative is formed for the benefit of its members. For example, farmers might form a cooperative to mutually support each other. For this structure, you’ll need to file articles of incorporation, prepare bylaws governing how the organization will operate, draft a membership application for anyone who wants to join, and hold a meeting of the charter members and cooperative directors.
Corporation
A corporation has a more complicated and formal structure than the other business types, and is usually used by companies that are already established and have several employees. Also referred to as a C corporation, it is owned by its shareholders. You must file articles of incorporation and register your business with the state. Bylaws are highly recommended as well as a shareholder BuySell Agreement. The major reason for the use of a corporation (or an LLC) is to insulate the owners from personal liability for company obligations.
Partnership
A partnership includes two or more owners, with each contributing something toward the operation of the business. While you’re not legally required to write a partnership agreement, it is strongly recommended that you do so for the protection of all of the partners’ interests. There are general partnerships and limited partnerships. The formation, filing requirements and operation of each is significantly different.
S Corporation
As compared to the C Corporation, the law makes a distinction between an S Corporation and its owners, reducing certain of their financial liabilities, but not eliminating them. The shareholders and not the business itself are taxed. You’ll need to file as a corporation first, register with the IRS and with the appropriate local and state agencies, and obtain a tax ID number. It is the IRS that determines if you can be established as an S Corporation. As S Corporation has restrictions on who may be shareholders therein. The biggest advantage to an S Corporation is avoidance of double taxation.
When to Hire a Lawyer
For all but a sole proprietorship, it’s generally advisable to involve a lawyer in some or all of the process, especially if you need to create partnership agreements, operating agreements or contracts between shareholders. Even for a sole proprietorship, you might want to hire a lawyer to advise you as to how to best launch your business. Contact Las Vegas commercial real estate attorney Marc Simon at (702) 451-7077 to advise you as to all your business needs.
