This year – 2016 – may be the year you start that new business you have been dreaming of. This year may also be the year you lose everything because you did not consider the type of business to form. For many new and inexperienced entrepreneurs, the type of business they choose to start – a corporation, a partnership, or otherwise – is based on one or several considerations:
- The type of business a friend or mentor has started;
- The type of business that requires the lowest filing fees and/or has the simplest formation process;
- The name of the business they wish to use (some entrepreneurs like having “Inc.” or “LLC” at the end of their business name over other similar designations);
All of these considerations may appear innocuous, but limiting oneself to these considerations and others like them can lead to financial ruin for the unwary entrepreneur. What, then, should an entrepreneur consider when starting his or her own business?
Consider Your Personal Liability
Corporations, limited liability companies (LLCs) and similar business entities offer a distinct advantage over sole proprietorships and other, “simpler” business forms: protection of your personal assets and property. A disgruntled customer who successfully sues a sole proprietorship (for example) may attach or garnish the personal assets of the sole proprietor to satisfy the judgment, leaving the sole proprietor financially devastated.
Consider Your Level of Control and Involvement
Starting a businesswith friends may be fun, but do you really want to share decision-making with your friend who has not outgrown his partying, college-days ways? Or do you want to share the profits of your business equally with your friend who does nothing to advance or promote the business? Some business forms give all owners of the business an equal say in decision-making and/or and equal share of the profits of the business. There are ways these default rules can be modified, but an uniformed entrepreneur may not think to modify these default rules until it is too late.
Consider Your Taxes
Some business forms (typically the simpler forms like sole proprietorships) allow you to report your business’s profits on your individual income tax return. You would only pay taxes on your business’s profits once. Choosing a corporation as your business form can result in “double taxation” – your corporation’s profits would be taxed once as your business earns the money, and then again if the profit earned is distributed to you and other shareholders in the form of a dividend.
After considering these issues, the choice of business form for your new venture may not be as clear as you previously believed. That is where the Law Office of John C. Grundy, Ohio business law attorneys, can help. We will discuss your goals and ideas with you and help you choose the right business form for your needs and your situation. We can also assist you in starting your business, including drafting articles of incorporation, operating agreements, and other necessary documents to give your business the best possible chance of success in the new year. See how our experienced Ohio business formation attorneys can help you by calling (330) 637-9030 or contact us through our website.