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 notowned 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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Ryenne S. on ContractsCounsel
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Ryenne S.

Principal Attorney
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Chicago, IL
12 Yrs Experience
Licensed in IL
DePaul University College of Law

My name is Ryenne Shaw and I help business owners build businesses that operate as assets instead of liabilities, increase in value over time and build wealth. My areas of expertise include corporate formation and business structure, contract law, employment/labor law, business risk and compliance and intellectual property. I also serve as outside general counsel to several businesses across various industries nationally. I spent most of my early legal career assisting C.E.O.s, General Counsel, and in-house legal counsel of both large and smaller corporations in minimizing liability, protecting business assets and maximizing profits. While working with many of these entities, I realized that smaller entities are often underserved. I saw that smaller business owners weren’t receiving the same level of legal support larger corporations relied upon to grow and sustain. I knew this was a major contributor to the ceiling that most small businesses hit before they’ve even scratched the surface of their potential. And I knew at that moment that all of this lack of knowledge and support was creating a huge wealth gap. After over ten years of legal experience, I started my law firm to provide the legal support small to mid-sized business owners and entrepreneurs need to grow and protect their brands, businesses, and assets. I have a passion for helping small to mid-sized businesses and startups grow into wealth-building assets by leveraging the same legal strategies large corporations have used for years to create real wealth. I enjoy connecting with my clients, learning about their visions and identifying ways to protect and maximize the reach, value and impact of their businesses. I am a strong legal writer with extensive litigation experience, including both federal and state (and administratively), which brings another element to every contract I prepare and the overall counsel and value I provide. Some of my recent projects include: - Negotiating & Drafting Commercial Lease Agreements - Drafting Trademark Licensing Agreements - Drafting Ambassador and Influencer Agreements - Drafting Collaboration Agreements - Drafting Service Agreements for service-providers, coaches and consultants - Drafting Master Service Agreements and SOWs - Drafting Terms of Service and Privacy Policies - Preparing policies and procedures for businesses in highly regulated industries - Drafting Employee Handbooks, Standard Operations and Procedures (SOPs) manuals, employment agreements - Creating Employer-employee infrastructure to ensure business compliance with employment and labor laws - Drafting Independent Contractor Agreements and Non-Disclosure/Non-Competition/Non-Solicitation Agreements - Conducting Federal Trademark Searches and filing trademark applications - Preparing Trademark Opinion Letters after conducting appropriate legal research - Drafting Letters of Opinion for Small Business Loans - Drafting and Responding to Cease and Desist Letters I service clients throughout the United States across a broad range of industries.

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Tatevik G.

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Los Angeles
1 Yr Experience
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University of West Los Angeles

Mrs. Gasparyan is the Founder of Gasparyan Law firm, APC located in the greater Los Angeles area. Her practice focuses on protecting the rights of individuals and defending small businesses. She offers almost 20 years of experience in her capacity as an insurance representative. For businesses, she offers great knowledge and expertise in business contracts, interpreting insurance policies and risk transfer.

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Jingjing L.

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London, UK
5 Yrs Experience
Licensed in IL
University of Chicago Law School

Hi there. I am a dual qualified (Illinois; England & Wales) transactional lawyer with about 5 years of experience. I trained in two of the top international "big law" firms focusing first on insurance and financial services work followed by general UK corporate and private equity work. I left private practice earlier this year, took a few months off for my wedding and honeymoon, and am currently exploring legal consulting opportunities.

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Jonathan K.

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Tulsa, OK
16 Yrs Experience
Licensed in OK
Oklahoma City University School of Law

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma. Jonathan's primary practice areas are business law, contracts and agreements, business litigation including breach of contract disputes and commercial claims, and outside general counsel services. Jonathan is considered an "America First" attorney by several of his clients, and has a reputation for aggressively defending their interests and rights both inside and outside the courtroom. Prior to founding Liberty Legal Solutions, LLC, Jonathan worked with a civil litigation law firm in Edmond, Oklahoma, where he obtained experience in a variety of practice areas. Jonathan has also worked with regional creditor rights law firms where he has assisted them in starting their branch operations in Oklahoma. Jonathan earned his B.A. in Government & International Politics from George Mason University in 2002 and earned his Juris Doctor from Oklahoma City University in 2006. Jonathan is married to his wife Jennifer. When not helping clients, Jonathan enjoys reading, Republican politics, spending time with family, traveling, and working on his "Freedom Friday" blog.

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Danny J.

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New York, NY
8 Yrs Experience
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New York Law School

I have had my own law practice since 2014 and I enjoy solving my clients’ problems. That’s why I constantly stay on top of the latest developments in the law and business of startups, entertainment, art, intellectual property, and commercial enterprise. I constantly keep learning because everything I learn helps me make my client’s life better. I assist clients in all aspects of copyright, trademark, contract, trade secret, business, nonprofit, employment, mediation, art, fashion, and entertainment law. Even though I am licensed to practice law in NY, I have worked for clients all over the country and even in Europe, Africa, and Latin America. No matter the client, I always look for ways to protect their assets, artworks, businesses, and brands with strategies to help them grow. I am a fluent bilingual legal professional who can analyze complex legal and business problems and solve them creatively for the benefit of my clients. I am detail-oriented and attentive which makes me excellent at negotiating, drafting, and revising all types of agreements and deals. I advise creatives and companies on intellectual property issues, risk management, and strategic planning. My clients love what I do for them because I employ a practical, client-tailored, and results-oriented approach to their case, no matter how small.

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CRAIG C.

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28 Yrs Experience
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UNIVERSITY OF HOUSTON LAW CENTER

I have 27 years of experience with drafting, editing, revising, reviewing and amending business and commercial contracts and agreements of all kinds.

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Adalbert M.

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Port Saint Lucie, FL
1 Yr Experience
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Western Michigan University Thomas M. Cooley Law School

I am a solo-practitioner and founder of The CYA LAW FIRM, PLLC, in Port Saint Lucie, Florida. I am a transactional lawyer, focusing on Asset Protection, Estate Planning, and Business Law. I am fluent in Spanish and English.

Kevin F. on ContractsCounsel
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Kevin F.

Director, IP Lawyer
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Bournemouth, England
35 Yrs Experience
Licensed in MA
The George Washington University School of Law

I'm an IP lawyer and patent attorney (US and European). I work in high tech fields, such as software, quantum computing, AI and Blockchain and many other IT related fields. I've been in IBM's IP legal function for 25 years and now am a Director in my own law firm.

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Cherryl M.

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London, GB
4 Yrs Experience
Licensed in CA
University of California, Hastings College of the Law

I am a U.S. lawyer (licensed in California) and have recently relocated to London. I hold a bachelor’s degree in Political Science from the University of California, Berkeley and a Juris Doctor law degree from the University of California, Hastings College of the Law. I have extensive experience in providing legal services and support in areas of business, labor & employment, IP enforcement (patent infringement, copyright & trademark), and other litigation matters; Reviewing, drafting, and editing business and legal documents/contracts; Conducting legal research and analysis, drafting memorandums, pleadings, discovery, document review, various motions, mediation briefs, and other litigation related activities; Reviewing and preparation of templates, policies, and processes for compliance with laws and regulations; educating and advising on legal and compliance issues.

Karl D. S. on ContractsCounsel
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Karl D. S.

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Middlebury, Connecticut
10 Yrs Experience
Licensed in CT, MA
Pepperdine University School of Law

Our managing attorney and founder, Karl D. Shehu, has a multidisciplinary practice encompassing estate and legacy planning, real estate law, and litigation. Attorney Shehu has assisted families, physicians, professionals, and people of faith provide for their loved ones by crafting individualized estate and legacy plans. Protecting families and safeguarding families is his passion. Attorney Shehu routinely represents lenders, buyers, sellers, and businesses in real estate transactions, researching and resolving title defects, escrowing funds, and drafting lending documents. To date, Attorney Shehu has closed a real estate deal in every town in Connecticut. As a litigator, Attorney Shehu has proven willing to engage in contentious court battles to obtain results for his clients. While practicing at DLA Piper, LLP, in Boston, Attorney Shehu represented the world’s largest pharmaceutical companies in multidistrict litigations filed throughout the United States. He has been a passionate advocate for immigrants and the seriously injured, frequently advising against lowball settlement offers. He is willing to try every case to verdict, and he meticulously prepares every case for trial. Attorney Shehu began his legal career as a consumer lawyer, utilizing fee-shifting statutes to force unscrupulous businesses to pay the legal fees of aggrieved consumers. For example, in Access Therapies v. Mendoza, 1:13-cv-01317 (S.D. Ind. 2014), Attorney Shehu utilized unique interpretations of the Trafficking Victims Protection Act, Truth-in-Lending Act, and Racketeer Influenced and Corrupt Organizations Act (RICO) to obtain a favorable result for his immigrant client. Attorney Shehu is a Waterbury, Connecticut native. He attended Our Lady of Mount Carmel grammar school, The Loomis Chaffee School, and Chase Collegiate School before earning degrees from Boston College, the University of Oxford’s Said Business School in England, and Pepperdine University School of Law. At Oxford, Karl was voted president of his class. Outside of his law practice, Attorney Shehu has worked to improve the world around him by participating in numerous charitable endeavors. He is a former candidate for the Connecticut Senate and a parishioner of St. Patrick Parish and Oratory in Waterbury. In addition, Attorney Shehu has written extensively on the Twenty-fifth Amendment and law firm retention by multinational firms.

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Kimbrelly K.

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Lake Lure, NC
24 Yrs Experience
Licensed in NC
University of North Carolina at Chapel Hill

Attorney Kegler has been licensed to practice law in ​the State of North Carolina since 1998. Over the years,​ she has worked in firms that focused on small​ business financing, initial startup formation, to​ starting several businesses of her own with bootstrap​ financing to venture capital funding. As a Certified​ Dream Manager, she couples the skills of listening to​ understand the big picture to get to solutions that not​ only fit today's needs but also the long term needs of​ her entrepreneurial clients.​

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