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 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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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
How To Get Quotes For Business Formation
Meet some of our Business Formation Lawyers
Richard G.
Hello! I am an Iowa native trying to bring some Midwest problem-solving to southern civil law. I thoroughly enjoy getting to know the individuals and businesses I assist. I practice estate planning and business formation and, with my litigation experience in mind, I help clients plan to ensure they and their interests are protected in the future.
Danielle G.
Danielle Giovannone is the principal of Danielle D. Giovannone Law Office. In her experience, Danielle has found that many business do not require in-house legal counsel, but still need outside counsel that knows their business just as well as in-house counsel. This need inspired Danielle to start her firm. Before starting her firm, Danielle served as Contracts Counsel at Siena College and as an attorney at the New York City Department of Education, Office of the General Counsel. At the NYCDOE, she served as lead counsel negotiating and drafting large-scale commercial agreements, including contracts with major technology firms on behalf of the school district. Prior to the NYCDOE, Danielle worked as an associate at a small corporate and securities law firm, where she gained hands-on experience right out of law school. Danielle has provided legal and policy advice on intellectual property and data privacy matters, as well as corporate law, formation and compliance, employer liability, insurance, regulatory matters, general municipal matters and non-profit issues. Danielle holds a J.D. from Fordham University School of Law and a B.S. from Cornell University. She is active in her Capital District community providing pro bono services to the Legal Project, and has served as Co-Chair to the Niskayuna Co-op Nursery School and Vice President of Services to the Craig Elementary School Parent Teacher Organization. Danielle is a member of the New York State Bar Association.
"Danielle is easy to work with, professional and knowledgeable."
Michael J.
Combining extensive experience in litigation and as general counsel for a real estate and private equity company, I provide ongoing guidance and support to clients on a variety of transactional matters, including business formation, partnership agreements, corporate agreements, commercial and residential leasing, and employment issues.
"Michael did an excellent job. I will hire him again. Thank you!"
Anand A.
Anand is an entrepreneur and attorney with a wide-ranging background. In his legal capacity, Anand has represented parties in (i) commercial finance, (ii) corporate, and (iii) real estate matters throughout the country, including New Jersey, Pennsylvania, Delaware, Arizona, and Georgia. He is well-versed in business formation and management, reviewing and negotiating contracts, advising clients on financing strategy, and various other arenas in which individuals and businesses commonly find themselves. As an entrepreneur, Anand is involved in the hospitality industry and commercial real estate. His approach to the legal practice is to treat clients fairly and provide the highest quality representation possible. Anand received his law degree from Rutgers University School of Law in 2013 and his Bachelor of Business Administration from Pace University, Lubin School of Business in 2007.
"Anand was a pleasure to work with! He was very thorough and professional."
Howard B.
Berkson is a dedicated, practical, and detail-oriented attorney licensed to practice in every state court of Oklahoma and the United States Northern and Eastern District Courts. He graduated from the University of Tulsa College of Law with Honors. While there, he received awards for highest grade in trial practice, legal research, and civil procedure. He was also the Executive Notes and Comments Editor for the Energy Law Journal, the official journal of the Energy Bar Association in Washington, D.C. The Energy Law Journal is one of the few peer-reviewed journals in the legal profession. Prior to becoming an attorney, Howard Berkson held executive positions involving a wide range of business and human resources management functions. He has in-depth knowledge of both business and HR practices. During his business career, Berkson negotiated, wrote, red-lined, and disputed contracts. He has answered charges, handled inspections, and supervised audits involving numerous agencies including the Department of Labor, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, and various state agencies. Berkson honed his analytical and writing skills while earning his Bachelor of Arts degree in Philosophy from the University of Washington. He went on to obtain a Master of Arts in Labor and Industrial Relations from the University of Illinois. Berkson’s work can be found in such publications as The Energy Law Journal, Human Resource Management Review and Personnel Psychology. He is a member of Phi Alpha Delta law fraternity and of Phi Kappa Phi honor society.
"Very easy and effective to work with. Howard knows what he is doing."
Gill D.
Erik has been a practicing attorney in Florida for over a decade. He specializes in employment and real estate contracts. He has represented clients big and small and can assist with any contract issue.
"Gill was incredibly responsive and professional throughout the entire process. He provided clear, practical legal guidance and handled a difficult, uncooperative counterparty with great patience. Highly recommend his services."
Travis D.
Travis counsels individuals and businesses on a broad range of complex topics. His practice centers on producing efficient, client-driven results. He concentrates his practice on real estate, construction, and general business matters with an emphasis on assisting clients both before and after problems occur by drafting contracts designed to best position clients to avoid disputes and litigating matters to a final resolution if problems emerge. Born and raised in Oklahoma, Travis is a triple graduate of the University of Oklahoma, having obtained his Bachelor of Arts, Master of Business Administration, and Juris Doctor degrees from OU. Prior to practicing law, Travis managed the finances and business operations of a successful construction supply company for several years. This insight into sophisticated business dealings, contractual issues, and strategic planning makes him uniquely qualified to handle a wide range of legal matters. Travis lives in Norman with his wife, Haley, dogs, Walter and Poppy, and cat, Ernest. Outside of the office, Travis enjoys playing golf and reading.
"What a great service! Will definitely recommend to family and friends!"
Christopher M.
I am a corporate attorney with several years of experience with contracts, corporate and business, government projects, and employment law.
"Chris helped us put together a quick SaaS contract. HE is very nice and professional."
July 8, 2022
AHAJI A.
Ahaji Amos, PLLC is a Houston-based intellectual property and civil litigation firm servicing clients throughout the U.S.
April 18, 2024
Gayle G.
Fractional General Counsel and Board Advisor with over 26 years of experience advising companies and their management in the US, EMEA and APAC. I use my legal and finance background to understand the client's business and bring the most practical, efficient legal solutions to grow the business while reducing risk. Focus includes: Compliance | Governance (including AI) | Tech Transactions | Licenses | SaaS | Cross Border | Equity Investments | JVs | International Expansion | Fractional GC https://www.linkedin.com/in/ggorvettesq
September 4, 2022
Deborah W.
Williamson Health Law is an established and trusted law firm focused on representing hospitals, health plans, physician groups, physicians, physical therapy businesses, psychologists and other health care providers, professionals, and businesses in all aspects of health law. including the Stark law, the Anti-Kickback Statute (“AKS”), the Health Insurance Portability and Accountability Act (“HIPAA”), regulatory compliance, Medicare and Blue Cross audits and overpayment appeals, payer departicipation and disaffiliation appeals, payer and provider disputes, reimbursement and billing, compliance plans, health care industry contracts and professional licensure. We represent clients throughout Michigan and the U.S. with certain federal matters such as federal regulatory analysis and Medicare audits.
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