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Business Formations |
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Business Organizations: Corporations, LLCs and Partnerships: Why it's not just a question of taxes.
GET YOUR BUSINESS ORGANIZED
Organize your business properly and legally to help you get credit, get business and get going.
Getting Credit: New and small businesses often struggle to raise capital. Banks look favorably on entrepreneurs who have demonstrated their commitment by getting organized, correctly.
Getting Business: Help attract long-term customers by showing them you are serious about your business.
Getting Organized: Be serious about your new business, and make sure you have thought about everything in advance.
PLAN FOR SUCCESS
Doing well presents its own challenges, such as expanding, hiring and keeping good employees, paying taxes and adapting to change.
Attracting Investors: Bringing new capital into an ongoing business may require that you sell a piece of your business to investors: an interest in some type of organized business.
Attracting Employees: An organized business means better job security, and clearly defined management roles minimize disruptions which can damage employee morale.
Minimizing Taxes: Different types of business organizations are taxed differently, and you must balance the potential tax liabilities against the other advantages and disadvantages of alternative forms of business organizations.
Planning For Your Heirs: Inheritance taxes and capital gains taxes can render it impossible for your children to inherit your business unless you plan in advance.
BE READY FOR PROBLEMS
Any business may encounter difficulties, such as lawsuits and disagreements among its owners, and, frankly, entrepreneurs must also consider the possibility that the business will not, in the end, survive.
Disagreements Among Owners: Discord among owners can paralyze a business, so you must decide in advance how to resolve such disagreements and, if necessary, how some owners can leave the business without destroying the entire company.
Capital Infusions: Perhaps the business is foundering, but you believe it can be saved with additional investments by the owners. Plan now to decide who must invest additional money and what happens if the owners invest unevenly.
Lawsuits & Bankruptcy: The proper business organization can protect your personal assets from being taken to satisfy the liabilities of your business.
CHOOSE THE RIGHT FORM OF BUSINESS
Forms of business organizations differ in many ways, including the difficulty of establishment, flexibility in management, protection of personal assets from business liabilities, and tax treatment of profits and losses.
Sole Proprietorship: Requires no organization, but provides no protection for personal assets.
General Partnership: Easy to organize and manage, but exposes owners to maximum risk.
Limited Partnership: Mostly an investment vehicle, it is inappropriate for most new and smaller businesses.
C Corporation: Safe and well-established, but often most highly taxed form of business.
S Corporation: Most benefits of a C Corporation with sometimes lower taxes, but many limitations.
Limited Liability Company: Protection of a corporation, flexibility and tax benefits of a partnership, but new, without much legal precedent for guidance.
OPERATE YOUR BUSINESS PRUDENTLY
Doing business is fraught with risk. Proper legal planning can prevent many calamities.
Signing Contracts: Leasing space, buying from suppliers, selling to customers and many other transactions all involve the negotiation of and execution of written contracts. Having them reviewed beforehand can ensure that you make only the deal you want, and take only the risks for which you are prepared.
Collecting Revenues: Sometimes just being paid is difficult. You can, however, plan ahead to minimize the expense of collection and maximize the possibility of being paid despite your debtors' bankruptcies.
Managing Employees: The risks involved in hiring and firing employees are greatly exaggerated by the media, but they are nonetheless real, and they can be minimized by careful adherence to a few basic policies and practices.
Maintaining Your Organization: Corporations and other business organizations must document their decisions, hold regular meetings, and file reports annually with the State, or risk exposure to personal liability and loss of tax benefits.
How to Choose an Attorney for Your Business
Look for Experience: The best advice on how to stay out of trouble comes from someone who has already seen the types of trouble into which a business can get.
Check References: You'll have to trust your attorney, so find someone trusted by people you trust.
Ask for Prices: It is often difficult to anticipate what legal services will cost, but some may be available at a fixed price. If not, then you should be given an estimate.
Make Sure You Understand: The law is complicated, but your attorney should make sure you understand what is going on.
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