Business Entity Formation

It is important for people who plan to engage in business to maintain a clear plan for the organization and operation of their business. This starts even before the business opens its doors to serve its first customer, bang its first nail, sell its first retail item, paint its first house or develop its first product. There are many steps that must be completed so that the owners of the business can insulate themselves from liability or loss should the business not succeed as planned or maintain a clear understanding of the profits between various members if the business succeeds beyond the owners highest expectations.

In particular the form of business operation may be different depending on the exposure to liability of the particular business. A business engaged in blasting or hazardous material handling is vastly different in terms of liability exposure than a florist shop or bakery. Therefore the selection of the form of business including sole proprietor, partnership, sub-s corporation or LLC is unique to each person or owner considering the start up of a business, depending on the goals of the owners and the risks associated with the particular operation of the business. The more risk involved in the planned business relative to risks associated with supplying goods and services to customers or clients, or in risks associated to the capital and contracts necessary for the business to engage in are significant factors in the type of business form that may be used. Certainly in very low risk ventures the operators of the business may seek to insulate themselves through the use of business insurance, and therefore select a sole proprietorship or partnership. In more risk adverse clients or businesses with more exposure to risk it is safer to incorporate either through the use of a c-corporation, sub-s corporation or an LLC.

There are also significant considerations regarding the selection of the business form regarding the exit strategy for the initial members or partners. As always tax considerations and administrative costs of operation should be considered at the outset. Different forms of operation may have different operational costs and tax considerations. Often time it makes sense to have the various forms of business organization that are being considered reviewed by an accountant for the tax and accounting considerations to be fully understood and considered, before making a final decision on the choice of the business entity to be used.

Therefore, it often makes sense to sit down with an attorney experienced in the area of business formation to answer the questions and devise the plan of action, relative to the specific issues that will be confronted by the owners of the new business. It always makes sense to put in place your business entity formation prior to engaging in the business to prevent unexpected events occurring at the beginning of operations, from attaching to the owners personally, thereby putting at risk the owners personal assets and real property to satisfy business obligations.

As always, Victor A. Denaro & Associates provides a free one hour initial consultation on all legal matters. The office is open 9-5 daily and does have night and weekend hours by appointment.

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