Business Formation Services

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What Are Business Formation Services?

Business formation services assist you in incorporating your business. They help choose what structure best suits your business. They also help ensure the newly established business is legally compliant and starts in a good economic state.

Whether you’re a sole proprietor, an S Corp, a C Corp, a partnership, or an LLC, business formation services will ensure that your needs are met.

Here is an article that describes business formation services.

What Do Business Formation Services Include?

Business formation services can do diverse tasks to expedite the business formation process. Here are some of the tasks that they’ll take off your plate:

  • Filing and organizing your business incorporation paperwork. This may include your business formation certificate and Employer Identification Number (EIN).
  • Filing your identity verification and other documents for due diligence.
  • Ensuring all formation documents are error-free.
  • Securing your Certificate of Good Standing and Tax Residence Certificates.
  • Checking for required fees and other additional payments.
  • Setting you up with registered agents to respond to requests for government fees, taxes, and legal responsibilities.
  • Finding and choosing available business names.
  • Guiding you through choosing the right business structure.

Here is an article on business formation services.

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4 Types of Company Formation

There are four main structures in which you can establish a business: sole proprietorships, partnerships, corporations, and LLCs.

Sole Proprietorship

In sole proprietorships, you make all business decisions and are in complete control. However, you are also entirely liable for all issues incurred in the business.

Your business and personal assets are similar, so they are similarly put at risk when things go south. Moreover, you are the one to pay taxes for the revenue that your business earns personally. This is called a “ pass-through entity ” taxation system.

Partnerships

In a general partnership, two or more individuals join forces to provide the capital and operating needs for the business.

Two types of partners can participate. General partners are the ones who make all the business decisions. They have “personal liability”, meaning they risk their assets if the partnership gets sued or incurs debt.

Limited partners, on the other hand, do not make decisions for the business. Their responsibility is merely to provide capital for the business. They do not have personal liability, so all their assets are protected if problems arise.

Regarding taxation, partners are each taxed on the individual revenue they earn in the business.

Corporation

A corporation is owned and controlled by shareholders to turn a profit (excluding non-profit corporations). However, it is considered a legal entity separate from its owners. Because of this, the business will be taxed as a separate entity.

However, there is double taxation in corporations. This means the corporation will be taxed for its profits, and the shareholders will be personally taxed for their shares.

Corporations have “limited liability”. Therefore, any liability incurred in the business will be paid for by the corporation’s assets and not by the shareholders.

Limited Liability Company (LLC)

Multiple “members own a limited liability company”. These members are not liable for other members’ problems in the business, and their assets remain protected. LLCs also have pass-through taxation so that each member will be personally taxed for their respective profits in the business.

Here is an article to read more on the 4 types of company formation.

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Is LLC Formation the Best Option?

LLC formation is one of the most common business structures in the US. This is not surprising because LLCs combine the best qualities of sole proprietorships, partnerships, and corporations. Here are the notable advantages of LLCs:

  • Like sole proprietorships, LLCs are relatively easy to form as they do not require much paperwork or complex board structures.
  • Similar to corporations, LLCs offer liability protection to their members, so they won’t have to risk their assets in case of bankruptcy.
  • LLCs are taxed like partnerships so that profits can go directly to each individual member. Therefore, there is no double taxation like in corporations. This means that the LLC will not be taxed as a separate entity, and only its individual members will be taxed.
  • LLCs rules are also highly flexible. Their flexibility mostly comes from the fact that their governing rules are not as strict as those of corporations. As a result, their operating agreement can be modified anytime should their structure need changes.
  • LLCs have management flexibility. Their members are the ones to do the dailies. There is no need for a board of directors with regular meetings. Recording of financial transactions is not subject to as strict requirements.

However, LLCs are not without their disadvantages.

  • Some states disallow groups from the professional sector (lawyers, doctors, engineers, accountants, etc.) to form an LLC.
  • LLCs ownerships are more complex to transfer than corporations. Unlike corporations, where they simply sell stock to new shareholders, all members in an LLC must agree before a new member can enter.
  • Unlike corporations, LLCs cannot exist as a sole entity. This is highly relevant in single-member LLCs, where the LLC will be dissolved if the member dies or becomes bankrupt.

Here is an article to consider whether an LLC is the proper business structure for you.

What Does a Business Formation Attorney Do?

A business formation attorney helps you with the critical aspects of starting a business. Here are some of the things they do:

  • Outline information on taxes, regulation fees, and business liabilities for your understanding
  • Draft legal documents needed like bylaws, agreements, and registrations
  • Obtain required licenses and permits to incorporate your business
  • Check available entity names for you to choose from
  • Deal with the task of registering your chosen business name

Here is an article outlining what a business formation attorney does.

Should I Hire a Lawyer for Business Formation?

You should hire a business formation attorney to get your business approved faster. These lawyers are up to date with current business laws and regulations in the state and federal government. Their expert guidance in business formation will minimize errors that will cause you to get rejected.

The cost of a business formation attorney outweighs the benefits you save by helping you focus on your business. At ContractsCounsel, we can connect you with the business formation attorney required to meet your needs.

Here is an article on whether you should hire a lawyer for business formation.

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