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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.
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.
Image via Pexels by Marek Levak
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.
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How To Get Quotes For Business Formation
Meet some of our Business Formation Lawyers
Thomas S.
28+ years experience. Licensed in Colorado and New York. Areas of expertise: estate planning, wills and trusts; trademark law; patent law; contracts and licensing; small business organization and counseling.
David L.
Experienced real estate, business, and tax practitioner, representing start up and established businesses with formation, contracts, and operational issues.
Jennifer W.
I am an Immigration attorney specializing in business, corporate, and family immigration. I have served the immigrant (EB1A/B/C, NIWs, and PERM) and non immigrant (H, L, O, TN, E) needs for individuals, families, start-up companies, and some of the largest financial and commercial companies. I have experience with adjustment of status and consular processing. Please let me know how I can serve your immigration needs.
Angela H.
Angela Hayden is an accomplished and driven attorney with a diverse professional background that sets her apart. Having served as a former Assistant Public Defender in Allegheny County, Angela acquired invaluable expertise in navigating the complexities of the criminal justice system. Her trial experience spans a wide range of cases, from minor retail theft to complex criminal homicide, demonstrating her ability to deliver successful outcomes for her clients. Prior to her focus on criminal defense, Angela honed her skills in public policy and political consulting through her work with both the Pennsylvania and United States House of Representatives. This experience provided her with a deep understanding of the intricacies of public policy and the ability to offer strategic guidance to clients. Angela's career also took her to a civil defense firm, where she traveled across the country, defending clients in litigation. This experience enhanced her ability to handle complex civil matters and strengthened her litigation skills. In addition to her expertise in criminal defense and civil litigation, Angela has demonstrated her proficiency in employment law, providing guidance and consultation to small businesses and non-profit organizations. Her keen insight into employment law matters ensures that businesses operate within legal boundaries while fostering a positive work environment. Furthermore, Angela is a licensed realtor, well-versed in residential real estate transactions. This additional knowledge allows her to offer comprehensive legal support to clients involved in real estate matters, ensuring their interests are protected throughout the process. Angela holds a degree from Hampton University and obtained her Juris Doctor from the University of Dayton School of Law. She is pursuing a Master of Business Administration. She is licensed to practice law in Pennsylvania and the District of Columbia, demonstrating her commitment to providing exceptional legal services in multiple jurisdictions. With her extensive experience and passion for achieving favorable outcomes for her clients, Angela Hayden is a dedicated advocate ready to guide you through your legal journey.
May 22, 2023
Bethany T.
I am an experienced family law attorney licensed in California and Florida with over 13 years of experience.
May 21, 2023
Maria M.
I have worked for over 20 years in the areas of family law, business formation, contracts and real estate law. In the area of family law, I represent clients in all areas of family law including child custody, child support, spousal support and marital property division as well as preparing prenuptial and separation agreements. I am experienced in real estate law, including commercial and residential leases, preparing various types of real estate related contracts. I am also experienced in business formation among other business law matters. I currently work in the area of grant management with the Small Business Administration.
May 22, 2023
Don K.
Oliver Keene is not your typical attorney. With a personal touch and a passion for helping others, he goes above and beyond to provide exceptional legal services. Born and raised in the heart of the Appalachian coalfields, Oliver understands the value of hard work and perseverance. His small-town upbringing instilled in him a deep sense of community and a commitment to making a difference in people's lives. Oliver's journey in the legal field began with a Bachelor's degree in Criminal Justice from Bluefield University. He went on to earn his Juris Doctorate from Lincoln Memorial University - Duncan School of Law, where he excelled in his studies and developed a strong foundation in law. Throughout his career, Oliver has gained invaluable experience working as a public defender, an attorney advisor for the Small Business Administration, and in various legal roles. With a focus on estate planning and business law, Oliver is dedicated to helping individuals and families protect their assets, plan for the future, and navigate the complexities of the legal system. His approachable demeanor, attention to detail, and genuine care for his clients set him apart. Oliver's clients can trust that he will go the extra mile to ensure their legal needs are met with the utmost professionalism and personalized service. Outside of his legal practice, Oliver enjoys spending time with his wife and daughter, exploring the great outdoors, and indulging in his passion for hunting and fishing. His commitment to serving military families is evident in his offering of discounted services as a token of gratitude for their sacrifices. When you choose Oliver Keene as your attorney, you're not just hiring a legal professional - you're gaining a trusted advisor and a compassionate advocate. With Oliver by your side, you can have confidence that your legal matters will be handled with the highest level of expertise and care.
May 22, 2023
Sage Law Firm S.
Dean represents client in all manners of tax controversy and provides comprehensive business consulting to corporations, LLCs, and non-profits. He has worked with multi-national companies, but most enjoys assisting small businesses with all legal matters from formation to dissolution. Dean routinely represents individuals and businesses before the IRS and various state taxation agencies. From audits to appeals, he works closely with his clients to reach favorable outcomes and beneficial resolutions. Though he assists many clients in his home state of California, Dean values working with a diverse clientele throughout the country.
May 23, 2023
Meagan K.
Meagan Kirchner has nearly a decade of experience in Immigration law. She has significant experience working on H-2B immigration matters. Her practice also focuses on business immigration, particularly representing corporate clients pursuing H, E3, TN, O, and L nonimmigrant classifications, as well as lawful permanent residence (EB-1A, NIW, EB-1C). Meagan has represented clients in a variety of industries including agriculture, hospitality, healthcare, IT, engineering, and finance. Meagan has a Bachelor of Science degree in Business from George Mason University and a Juris Doctor degree from the George Mason University School of Law. She is licensed to practice law in Virginia and is also a member of the American Immigration Lawyers Association (AILA).
May 23, 2023
Barbara M.
In 1991, Barbara Markessinis graduated cum laude from Albany Law School in Albany, New York. Shortly thereafter, Barbara was admitted to practice in New York State and in the United States District Court for the Northern District of New York. In 1997, Barbara was admitted to practice in Massachusetts and in April of 2009 she was admitted to the United States District Court for the District of Massachusetts. After graduating from law school, Barbara worked in private practice in the Albany, New York area and for Sneeringer, Monahan, Provost & Redgrave Title Agency, Inc. before joining the New York State Division for Youth and the New York State Attorney General's Real Property Bureau as a Senior Attorney. During her tenure with the Division for Youth, Attorney Markessinis found herself in Manhattan Family Court in front of Judge Judy! A career highlight for sure! After admission to the Massachusetts Bar, Barbara returned to private practice in the Berkshires and eventually started her own firm in June of 2006. Attorney Markessinis offers legal services in elder law, estate planning and administration/probate, family law, limited assistance representation (LAR), real estate and landlord tenant disputes. In 2016, after a family member found themselves in need of long term care, Attorney Markessinis’ launched her elder law practice. Through this experience, Attorney Markessinis discovered that the process of selecting a long term care facility and/or caregiver, applying for MassHealth and preserving an applicant’s assets are serious issues faced by many people every day. This area of the law is Barbara’s passion and she offers her legal services to families who find themselves in need of an elder law attorney. Attorney Markessinis is part of the Volunteer Legal Clinic in the Berkshire Probate & Family Court and has provided limited free legal services to patients and families at Moments House cancer support center in Pittsfield. She currently serves as a Hearing Committee Member for the MA Board of Bar Overseers and is a member of the Berkshire County and Massachusetts Bar Associations, Berkshire County Estate Planning Council (BCEPC). Attorney Markessinis is also the host of WUPE Talks Law. She also serves on the Town of Hancock Zoning Board of Appeals and Planning Board.
May 24, 2023
Alan W.
40 years practicing most areas of commercial real estate and commercial real estate financing: heavy emphasis on reviewing, drafting and negotiating commercial shopping center leases, agreements of purchase and sale, title and survey, letters of intent, closing documents, lease amendments, lease terminations, etc
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