Skip to main content

Business & Commercial Law

Search for an Attorney  

The Legal Steps to Starting a Business

If you are interested in starting a new business, there are several key decisions you need to make to set yourself on the right path. These include organization, financing, management, and operations.

After you’ve done your homework and formed a business plan, an important choice will be to determine what type of entity you’d like your business venture to be. The choices include:

  • Sole proprietorship
  • Limited liability company (LLC)
  • Partnership
  • S or C corporation

What Are the Advantages of Forming a Corporation?

A corporation is a separate legal entity that will allow you to keep the business as a separate entity from you and any co-owners.

This “corporate veil” of limited liability will protect you and any other owners’ personal assets from any debts and liabilities owed by the business. Owners of a business that has limited liability may lose only what they have invested in the business, meaning creditors cannot reach the owner’s personal assets to cover the business’s debts.

If a business is sued or goes bankrupt, only the assets of the business may be used to cover the debt, and as an owner, you not have to sell your home or other property to cover your share of the company’s debt. Businesses that have limited liability are corporations, limited liability companies, and limited liability partnerships (LLPs).

In a business that is a sole proprietorship or a partnership, the owners are personally liable for the business’s debts.

What Are the Advantages of an LLC?

Forming a business as a limited liability company (LLC) combines some of the benefits of a corporation with some of the advantages of a sole proprietorship. Owners of an LLC enjoy the limited personal liability for mistakes or misconduct of the business that owners of corporations enjoy.

LLC owners are also not subject to the same tax implications as a corporation. Further, an LLC offers its owners quite a bit of flexibility to determine how the business is going to be managed and how income is going to be allocated among the owners.

What Is an S Corporation?

Owners who choose to incorporate their business as an S Corporation are choosing not to have the corporation pay income taxes, but rather to have each owner pay personal income tax (or report a loss) on their share of income (or losses) from the business.

To incorporate as an S corporation, the company must have only one class of stock and not more than a certain number of owners. All of the owners must be U.S. citizens or legal residents and must be actual people. This means other corporate entities cannot own part of an S Corporation, although there are exceptions.

What Is a C Corporation?

A C Corporation is the most common type of corporation. They may have any number of investors and it can, therefore, be easier to raise the capital necessary to operate the business. C Corporations can also offer stock incentives to their employees. Corporate owners usually do not have personal liability for corporate debts or negligence. Some C Corporation owners also find it cheaper to provide health insurance and retirement benefits for employees.

What to Do Next

After you’ve decided how to incorporate your business, you will want to go about securing financing, whether through a loan from the bank or some form of government grant or loan. You can also seek other investors to join you.

You will then need to register your business with your state and/or local government and obtain any permits and licenses. This can include something like a liquor license.

You will also need to obtain a tax identification number from the Internal Revenue Service (IRS) for filing federal, state, and local taxes.

Next will come creating policies for employment, operations, record-keeping, and many other matters. Your attorney will be able to help you through all of these steps to ensure your company is well-positioned for future success.

Was this helpful?