If you want to start a business of your own, or are in the early stages of doing so, you are no doubt feeling a certain amount of stress. Your business will require a great deal of time, money and “sweat,” and it will probably represent one of your most valuable assets. This is why you need an effective business plan, and in particular, a solid formation strategy.
Your formation strategy must take into account the possibility of rapid growth while at the same time provide protection against potential short and long-term losses. It must also shield personal and family assets from any losses associated with the business itself. Finally, your plan must protect your business from a wide range of potential threats, including lawsuits, the inability of loved ones to access assets if you become incapacitated, the manner and timing of your exit from the business, tax minimization, and problematic partners and employees.
All of this makes choosing the right business entity extremely important. What is the ideal entity for you? Here is a short introduction to some of the most common approaches.
Sole Proprietorships are generally suitable for self-employed people who have not formally organized their business.
Partnerships can be informal or formal agreements between individuals who agree to work together and share both profits and losses. Partnerships can be General, wherein all parties share profits, losses and liability. There are also Limited Partnerships, in which one (or more) of the partners contributes capital, shares in profit or loss, but is not actively involved in running the business.
A Corporation is the most common type of business organization. It provides many important legal rights to owners, including limited liability, the ability to issue shares of transferable stock and greater flexibility in managing overall ownership structure. Through incorporation, owners have separate legal standing from the company and are protected against personal liability if the corporation itself is sued.
Limited Liability Company
Limited Liability Companies combine the flexibility of Partnership with the protection of limited liability for owners, much like that inherent in a Corporation. Another benefit of an LLC is that it is considerably easier to create and register than a Corporation.
Given the importance that the success of your business will have on the overall well-being of your family, it is essential to choose the right business entity and have a properly designed plan in place for the future. We are here to help you every step of the way.