Tips for Success in Choosing a Business Structure

By: Stacey Romberg, Attorney at Law. www.staceyromberg.com

Choosing a business structure can be a daunting task! I recommend that entrepreneurs, in making their selection, analyze the following four factors:

Evaluate Your Risk

Does your business idea involve some risk of liability? If so, in what sense? And how much risk? For example, do you want to lead rock climbing excursions? Or to provide a more common example, suppose you want to operate a cross training gym? The risks involved in these types of businesses are clear – the participants may be injured. On another note, suppose you are a wedding photographer? You could be on the hook if the photos don’t turn out well and the bride and groom become angry and litigious. Generally speaking, if your business involves a great deal of potential risk, a business entity such as a corporation or a limited liability company (LLC) may prove helpful in shielding you from individual liability.

Evaluate Your Business Relationships

Breaking up is hard to do! Most couples, when they get married, incorrectly assume that their relationship will last forever so no prenuptial agreement is necessary. Similarly, many business owners assume they will always be able to work together well so there’s no need to spend money on legal fees to develop a corporate Shareholders Agreement or LLC Operating Agreement. These agreements govern the relationship between business owners, and can spell out what will happen if business owners are deadlocked or how a business owner may exit out of the business. A breakup of a business relationship can resemble the dissolution of a marriage, with all the accompanying drama, stress, and expense. If you are going into business with another person, enter into that relationship with caution and a solid legal agreement in place.

Confer with Your Certified Public Accountant (CPA)

Be sure, as you consider what business structure to form, to consult with your CPA about the tax implications of the various business structures. It’s important that you understand all the financial facts regarding your potential tax liabilities before making a decision.

Confer with Your Business Attorney

A business attorney should form any business entity other than a sole proprietorship. If your business is not formed properly, you may be disappointed to discover that, in the event of litigation, the business entity fails to shield you from personal liability because the structural documents are insufficient, inappropriate, or not being consistently followed.

Stacey L. Romberg, Attorney at Law. www.staceyromberg.com This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.