If you and a partner are planning on going into business together, you are likely concerned about how to best protect the interests of both owners while protecting the interests of the business itself. There are many ways that an experienced attorney can help you achieve these goals and assist with your business structure. One of the first tools an attorney will likely use in order to aid you and your partner is the legal structure of the business itself.
There are four primary business structures that are available as new companies form and formally register with the government. These business structures consist of sole proprietorships, partnerships, limited liability companies and corporations. If you are going into business with a co-owner, a sole proprietorship will likely not be your best option as this business structure only legally recognizes the rights of one owner. It is therefore important to consider your remaining options. Specifically, it may be in your best interests to either structure as a limited liability company (taxed as either a partnership or a corporation) or a limited partnership.
Limited Liability Companies
The primary advantage of forming an LLC is that this structure provides its owners with limited liability. Practically speaking, the personal assets of LLC owners are generally insulated from business debts, losses, lawsuits and business-related wrongdoing. This means that if your company is held accountable for certain financial liabilities, your personal assets cannot be seized. This is a significant form of protection and should be strongly considered when determining what business structure works best for you and your co-owner or limited partner.
It should also be noted that LLCs enjoy a flexible tax option. Owners of LLCs may choose to be taxed as a partnership (and will be taxed as a partnership by default unless they explicitly choose an alternative) or as a corporation. This is particularly helpful for those owners who wish the business to be taxed at the corporate, rather than the personal level.
There is one major advantage to structuring your business as a limited partnership that may outweigh the limited liability and tax flexibility of the business structure of an LLC. The management of limited partnerships allows for both general partners and limited partners. Limited partners generally only serve as investors and may not be active in the daily operations of the business. This may be an attractive option when you or your co-owner and limited partner is primarily supporting and benefitting from the business financially while the other manages the operations of the business itself. This arrangement can aid co-owners in clearly defining their roles and avoiding in-fighting. Many families choose this business structure when starting a business together where the co-owner is a limited partner.
Formation Assistance Is Available
If you are starting a new business or forming an LLC, please consider contracting LawTrades. Our team has extensive experience aiding new business owners in forming their companies, business structure, navigating legal registration and incorporation hurdles, hiring, financing and successfully getting new companies off the ground. To-date, we have helped more than 5,000 startups commence operations and form the legal structure of their business.
Starting a new business can be challenging, but we are passionate about helping new business owners succeed. In addition, we at LawTrades pride ourselves on being approachable, affordable, efficient and effective. Please consider reaching out to LawTrades in order to ensure that all your new business’s legal structure is determined and that you are properly supported as we help you and your co-owner navigate the process of successfully launching your company.