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Business formation: 4 considerations when choosing a structure

On Behalf of | Feb 15, 2024 | BUSINESS & COMMERCIAL LAW - Business Formation & Planning |

Have you decided to form a business and become a successful entrepreneur? Congratulations, but do not let your enthusiasm distract you from the many crucial decisions awaiting your attention.

One of the most vital is choosing a legal structure for your new company. Many business owners settle on the easiest or most common option, but considering some things in advance can lead to better-informed choices. Given the importance of the decision, it is wise to discuss your options with a skilled business law attorney who can provide guidance uniquely tailored to your circumstances.

1. Taxation tango

Pass-through or corporate taxation? Pass-through entities like sole proprietorships and LLCs report business income on personal tax returns, while corporations file separately. Consider tax implications based on your projected income and future growth plans.

2. Liability lighthouse

Did you know sole proprietorships offer no liability protection? However, an LLC or a corporation forms a barrier between your business and personal finances. Choose a structure based on your potential exposure to, and ability to tolerate asset risk.

3. Formation flexibility

If you crave a streamlined setup, LLCs and sole proprietorships require few formalities and can be ideal for solopreneurs and small partnerships. Corporations demand stricter procedures and ongoing compliance but may offer greater flexibility.

4. Future-proofing

Remember to think ahead when forming your business. If scaling up or attracting investors is on your roadmap, consider structures like corporations that resonate better with them. Conversely, if you envision remaining small and solo, a simpler structure might suffice.

Legal landscape

Business formation is a complicated process, and creating accurate corporate documents from the very start is crucial. It is wise to select a law firm to guide you through drafting these start-up documents whether it is an operating agreement for an LLC, corporate bylaws, appointments of directors or stock certificates. Whether this is your first business or your fifth, it is critical to retain a law firm to not only advise you on entity selection but once that decision is made, draft the corporate formation documents designed to protect and grow your new business.