ENTITY FORMATION

A client who has decided to begin a new business may, if he or she chooses, conduct that business in his or her personal capacity.  A business conducted in such a manner is known as sole proprietorship.  When one or more persons join together in a for profit business, they are usually considered as partners in a “common law partnership.”

In a sole proprietorship and in a common law partnership, the owners of the business are not legally separate from the business.  As such, the debts and other liabilities of the business become the debts and liabilities of each of the owners.  Therefore, the personal assets of the owner would be subject to seizure for the satisfaction of business debts.

Corporations, limited liability companies, limited liability partnerships and other legal entities provide an important advantage: if properly managed, those entities are separate legal entities from the owners.

In such a case, the owners (called “shareholders” in a corporation, “members” in a limited liability company, for example) are usually not personally liable for the debts of the business due to their status as owners.  If the business conducted through such and entity fails, the owner may lose the value of his or her investment in business, but the rest of the owner’s personal assets may be protected.

Therefore, for many reasons, it may be a better choice to engage in business through an artificial business entity.  The choice of a particular entity requires an understanding and analysis of many things including number of owners, the desired management structure, the service or product offered, tax issues, the capital requirements of the business and future business plans.

We assist our clients make a sensible choice, and perform the services required to help our clients begin their businesses.