Business Formation
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What is Business Formation?
Business formation is the decisions that need to be made when creating the structure of your business. Choosing between different business structures, such as a sole proprietorship, a partnership, an LLC, a corporation, and a non-profit, will impact the future business decisions you’ll make for your business.
Choosing the appropriate business formation from the start is an important strategy for determining your responsibilities, liabilities, privileges, and restrictions. Below are some things to consider when choosing which structure works for you:
- Taxes. Business formation structures differ in the amount of taxes to be paid, who pays the taxes, and what tax exemptions apply (if any).
- Liability. Some business formation structures risk their owner’s personal assets in case of default.
- Hierarchies. Corporate ladders differ in required size and responsibility depending on the business formation structure chosen.
- Documents and Permits. Filing with entities such as the IRS and gathering necessary permits will vary depending on the type of business structure. Therefore, the annual reporting and documentation required will vary as well.
Here is an article about business formation.
Main Types of Business Structures
Limited Liability Company
A limited liability company (LLC) is a popular form of business. The business enjoys the benefits of being a corporation with reduced potential liability. In simpler terms, LLCs protect the company's members from divulging their personal assets to pay off penalties.
LLCs are pass-through entities. Members report business income or losses on their personal tax returns. This avoids the problem that corporations face of double taxation.
There are two common types of LLC structures:
- Single Member LLC. In a single-member LLC, an individual or group is registered as the business's sole owner.
- Multi-Member LLC. Multiple individuals or groups are registered as business owners in a multi-member LLC. Multi-member LLCs are required to file a federal tax return like other companies.
Here is an article on the tax implications of LLCs.
Corporation
A corporation is a business entity owned by investors and a board. For for-profit corporations, the goal is for the business to be profitable in the best interest of the shareholders.
Shareholders can benefit from the ability to recoup their investment while still being protected from the potential liability of lenders going after their personal assets. There are various types of corporate structures. Some of them include the following:
- S-Corporation. An S Corp is a pass-through taxation system. Businesses don't have to pay taxes. S Corps are limited to 100 shareholders. Here is an article discussing S Corps.
- C-Corporation. A C Corp has a double-taxation system. It means that the corporation will pay its taxes. However, its shareholders are subject to personal income tax. C Corps are not limited to the number of members. Here is an article discussing C Corps.
- B-Corporation. Also called a “benefit corporation,” a B Corp is a certification for a corporation, ensuring that the company’s purpose is the public (employees, customers, suppliers, etc.) instead of its shareholders. The goal is to make a profit and benefit society at the same time. Like C Corps, B Corps have a double-taxation system. Here is an article discussing B-corps in detail.
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Partnership
Several people pool their resources together in a partnership to conduct a business. This can be done with varying degrees of formality but usually is formalized through a partnership agreement that stipulates partner ownership and profit/loss shares within the business.
Some types of partnerships include:
- General Partnership (GP). In a general partnership, all partners have equal rights and responsibilities. The management of the company’s day-to-day is shared between partners. Public partnerships have a pass-through taxation system, so each partner personally pays their taxes.
- Limited Partnership (LP). In limited partnerships, some partners are limited to becoming “silent partners” who are not accountable for the company's obligations. Their sole responsibility is investing money. At least one general partner in limited partnerships is responsible for decision-making. Due to their limited involvement in the business, the silent partners’ personal assets are protected from liability. It is the general partners who are risking their own.
- Limited Liability Partnership (LLP) – In limited liability partnerships, every partner is responsible for making decisions in the company. However, each partner is also protected from the liabilities of the other partners. Partners are insulated from the risk of losing personal assets if there ever is legal action against one of the other partners.
- Limited Liability Limited Partnership (LLLP) – LLLPs are limited partnerships with one unique feature: both the general and the silent partners have liability protection.
Here is an article describing partnership formation in general.
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Sole Proprietorship
You and your businesses are the same in a sole proprietorship. The upside is that the formation costs are cheaper, and you are in complete control of all decisions for the business. The downside is that you do not have liability protection and risk your personal assets.
Sole proprietorships have a pass-through taxing system, so all your gains and losses will be carried under your personal income tax. You are also eligible for the self-employed tax credit.
Here is an article on sole proprietorships.
Non-profits
Non-profits are established to benefit different groups of people and public institutions. Unlike most businesses, their mission statement is not solely to be profitable and typically includes the language of a certain society the business intends to serve. In addition, the charitable nature of these businesses makes them eligible for state and federal tax exemptions.
Non-profits are similar to B Corps, but they have notable differences. B Corps are owned by shareholders, while non-profits are not owned by anyone.
Instead, non-profits are overseen by a board of trustees. In addition, non-profits can hold fundraisers and solicit donations from investors to acquire funds. At the same time, B Corps are limited to traditional ways like turning to debt or selling stock.
Here is an article about non-profits.
What Is Business Formation Law?
The business law field comprises a wide range of laws, regulations, rules, and policies that define the legal process of building a business.
These laws involve contract creation, licenses and permits, observance of IRS regulatory requirements, and company operations. Business legal issues are also related to mergers, acquisitions, and other complex transactions.
Here is an article about business formation law.
How Business Formation Services Work
A well-formed business is an important step towards wealth and success. Business formation services will help you choose a business structure tailored to your business goals and help create the documents required for incorporation.
They help reduce errors in the building stage and provide you with agents overseeing your business's legal and regulatory aspects. At ContractsCounsel, our site can connect you with legal services that are right for the needs of your business.
Here is an article for more information on how business formation services work.
Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.”
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
How To Get Quotes For Business Formation
Meet some of our Business Formation Lawyers
Erdal T.
Erdal Turnacioglu of Erdal Employment Law focuses on providing employment solutions to both employees and businesses, whether through litigation, review of employee handbooks, workplace investigations, or training seminars.
"Erdal was a pleasure to work with. He was quick to respond to any questions or concerns I had."
Charlton M.
Charlton Messer helps businesses and their owners with general counsel and contract drafting services. He has helped over 500 businesses with their legal needs across a variety of industries in nearly a decade of practice.
"I am so happy with my decision to hire Charlton. Not only was he responsive and timely, he laid everything out for me in terms that I could understand. I would recommend him to anyone and will be working with him for all of my future needs!"
Dan "Dragan" I.
I received a bachelor’s degree in philosophy from Northwestern University in 1996 and then got my JD at University of Illinois College of Law in 1999. I have been a lawyer helping people with legal issues in the United States and Internationally since then. That includes litigation as well as contracts/transactions. I am also passionate about helping small and medium businesses with trademark registration and trademark-related legal projects. The law can be confusing and complicated for people, and I am passionate about providing professional legal services to my clients while simultaneously making the legal process less confusing and stressful for them. My goal is to help clients navigate through both good and difficult times by tailoring my skills, experience, and services to their specific needs. I am currently licensed and authorized to practice before the Illinois courts and the United States District Court for the Northern District of Illinois. Internationally I am one of a select few American attorneys licensed and authorized to practice before the United Nations ICTY/IRMCT, the International Criminal Court, and the State Court of Bosnia-Herzegovina. Clients have retained me internationally alongside local counsel in several European countries, Australia, and Africa in private legal matters. I have also been appointed by the United Nations to represent persons at the ICTY/IRMCT and chosen by indigent accused to represent them. Since 2009 my law firm has handled domestic and international cases, including Trial litigation (including Commercial, Premises Liability, Personal Injury, Criminal Defense, and General Litigation) and Transactional work (Contracts, Corporate formation, and Real Estate Transactions). I enjoy helping less experienced practitioners and students evolve and improve. I served as an instructor/lecturer on Oral Advocacy and Trial Practice for the participants of the ADC-ICT & ICLB Mock Trial since 2014, and have presented Advocacy Training lectures for the ADC-ICT on several topics as well as regularly lecturing to visiting University and Bar groups from around the world. If you or a loved one have a legal matter of importance, let's see if I can help you with it!
"Dan did a great job to help the trademark filing. very expereince attorney."
Valerie L.
Valerie is a passionate attorney specializing in Employment Law, Family Law, Personal Injury, and Business. With a strong foundation in the legal field, she is committed to helping individuals navigate the intricacies of their legal agreements. Valerie prioritizes open communication, ensuring her clients feel seen, understood, and confident as they make important decisions for their future. She is committed to empowering clients to become the best version of themselves while addressing their unique needs throughout the process.
"Valerie was very responsive, professional, and knowledgeable. She was able to review my prenuptial agreement and thoroughly went through the agreement with me to ensure it matched my needs."
Michael M.
www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 and 2023, I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and number of 5 Star reviews.
"Michael reviewed the non-compete and non-solicit language in a business seller's agreement and an employment contract in California and provided good feedback regarding its potential validity. The feedback was clear and very helpful."
Spencer R.
I am an experienced attorney working in New York specializing in executive compensation/severance arrangements, transactional real estate work, tax structuring and contracts.
"I will use Spencer in the future for my future contract needs. Nice guy and personable. Love workiing with him. Got right down to business immediately."
September 13, 2022
Kathryn K.
I graduated from Georgetown Law in 2009 and have been practicing for fourteen years. I primarily work on commercial contracts. I specialize in drafting, reviewing, and negotiating MSAs for services companies, specializing in SaaS agreements. I have drafted online terms of service, acceptance use policies, and privacy policies for clients across a range of industries. In addition, I counsel clients on NDAs, non-solicitation/non-competition agreements, employment contracts, and commercial and residential leases. Prior to opening my own practice, I worked for four years at one of the most prestigious law firms in the world, an appellate litigation firm, the federal government, and one of the country's most renowned government contracts firms. I live in Boulder but represent clients nationwide. Although I have represented numerous Fortune 500 companies and the Defense Department, my passion is advising startups and small businesses. Like so many of my clients, I am an entrepreneur and have owned and operated three businesses (my law firm and two companies outside the legal field). I understand the needs and concerns of small business owners. I look forward to working with you.
September 12, 2022
Wendy C.
Business Advisor and Real Estate Consultant: Small boutique firm working to assist entrepreneurs, business start-ups, property investors, new home buyers, and distressed owners Wendy Calvert began her career as a corporate attorney focusing on complex commercial litigation, primarily in construction, property and casualty, and contractor liability. Through this experience, Wendy has managed and successfully litigated cases in Illinois and Wisconsin. In 2004, Wendy relocated to Illinois to work as an insurance litigation counsel and later as an executive sales consultant and insurance expert. Wendy now utilizes her skills as a contract negotiator, litigator, and sales consultant to negotiate real estate deals and help entrepreneurs create and grow the businesses of their dreams. EDUCATION Wendy earned her Juris Doctor in 1999 from the University of Wisconsin Madison. In 1989, Wendy graduated with a Bachelor of Arts in Business Administration and Communications from Marquette University.
Max L.
Hi there. My practice focuses on several aspects of business law, including business entity formation and organizational documents, trademark and copyright, tax disputes, and contracts. I work with quite a few creative entrepreneurs, such as photographers, artists, and musicians.
Tina T.
I am a New Mexico licensed attorney with many years of world experience in real estate, transactional law, social security disability law, immigration law, consumer law, and estate planning.
December 27, 2022
Brent W.
Brent has been in practice since 2007 and been the principal attorney and owner of The Walker Firm, LLC since 2014. Brent focuses on providing an array of general counsel services to individuals and companies in a variety of industries.
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