Which Legal Entity Is Right For Your Small Business? A Review of Your Corporate Formation Options

One of the most crucial decisions you will make concerning your new business is what legal entity to adopt.  The type of business entity you select can have significant consequences for your personal liability, control over the business, level of management, your ability to grow and expand, and the level of taxes you pay, both federally and in state.

The following is a brief overview of some of the business entities available to you in Florida.  This list is not intended to replace the guidance of a business formation attorney.  A corporate formation attorney will examine your individual situation and offer expert advice as to the best legal entity for you.  While no replacement for an attorney, this primer will arm you with the knowledge you need to better understand your business formation options.

  1. Sole Proprietorship—this is the most common entity for home-based businesses.  While this entity has the fewest legal formalities, it also offers the least amount of legal protection.  A sole proprietorship typically involves one owner who also operates the business.  This entity offers ease of set up and taxation.  You will be personally liable if sued, however, and you may have trouble growing the company later if you wish to take on investors.
  2. Limited Liability Company (LLC)—LLC’s have become extremely popular in recent years, and the advantages of such entities make it easy to see why.  LLC’s are hybrid entities that combine the benefits of corporations and partnerships.  Your personal assets are protected in the case of a lawsuit if you use an LLC.  This entity offers flexibility in both taxation and membership.  It can, however, be tricky to offer stock options to investors and there is a lot of paperwork involved, often necessitating the assistance of an attorney.
  3. Partnerships—partnerships involve one or more individuals who share profits and losses of the business.  There are two main types: general and limited.  A general partnership requires the partners manage the company together and all partners assume responsibility for debts.  In a limited partnership, on the other hand, limited partners provide investments but have no control over the company.  Partnerships can be costly to set up because of the multiple parties involved and sometimes differing roles of the partners.  In founding a general or limited partnership, you should consider what each partner is investing in the company, their responsibilities, possible buyout plans, and disagreement resolutions.  While partnerships allow for collaborative business growth, they can also leave you liable in the event of a lawsuit.
  4. Corporations—a corporation is often set up for a larger entity, generally a business that involves shareholders or investors.  Individuals are not generally personally liable for the debts of a corporation.  Corporation types include C-corporation and S-corporation.  Raising capital is easy with a corporation and there are some tax benefits.  However, forming a corporation can be costly and involve a massive amount of paperwork.

As a small business developer just starting out, you have numerous options at your disposal as you consider forming your business entity.  A corporate formation attorney will thoroughly examine your intended business model and research all potential benefits as well as drawbacks to using a certain legal entity.  After much discussion and study, your business attorney will advise you as to which corporate entity is best.

Start your Florida small business off the right way—contact Scott Law Group, PLC today.  Our dedicated firm of business professionals will ensure you select the correct business entity which will lead you to years of success.  Call us at (727) 754-5001 to schedule a free consultation.

The Dangers of Using Legal Zoom, Rocket Lawyer, or a CPA to Setup an Entity

In our technology-driven era, many people turn to websites like Legal Zoom and Rocket Lawyer, who offer corporation formation or entity creation at discount prices, to startup their company.  Still others, perhaps in an effort to save costs, employ the services of a CPA to form their business entity, believing these professionals to be knowledgeable in the field.  Despite the advertisements of these non-attorney companies, however, there exists much danger in using these providers to setup your corporate entity.

The following is a list of the potential hazards involved in not employing the help of a professional corporation formation attorney.  This list is not designed to dissuade you from using Legal Zoom, Rocket Lawyer, a CPA, or the like.  Rather, its intent is to ensure you are fully informed when making the important decision of who should form your new business.

  1. You may actually pay more–CPA firms and Legal Zoom charge for some services that you can do yourself for free.  The basic setup of your entity can be done quickly and easily on your own.  By visiting Florida’s Secretary of State website, you can register your entities name, file your Articles of Organization or Incorporation, or Certificate of Limited Partnership.  You can then visit the IRS webpage to request an EIN number.  The only costs involved in these basic startup steps are filing fees, which most CPA firms and websites will require you cover anyway.
  2. Forming an entity is more complicated than you think—non-attorney companies cannot offer you legal advice because they are not licensed attorneys.  A thorough, individualized legal consultation is the most important step in formation of a corporate entity.  This is due to the complex nature of entity startups.  An attorney can advise you as to what entity is the best structure for your business.  The options are numerous and include: C-Corporation; S-Corporation; Limited Liability Company; Sole Proprietorship; and Limited Partnerships.  A knowledgeable business attorney will review your proposed business plan, including the number of partners and the investments of each.  Essential issues such as decision making and profit sharing will be discussed and decided with the guidance of your expert business attorney.  Intellectual property issues, whether it be protecting your own or ensuring you do not infringe upon another, will all be addressed in your attorney consultation.  The assistance of a seasoned business attorney is absolutely vital to the long term success of your new business.
  3. You may face disputes down the road—Legal Zoom and other legal help websites, along with CPA firms, use boiler plate documents.  These documents are not tailored to the specific company and often lack guidance as to specific problems.  When a business dispute arises down the road, business owners turn to their corporate documents seeking resolve, and instead find the issue not addressed.  This can lead to ongoing disputes that often end up in the courtroom, costing business owners and their companies tens of thousands in legal fees and much wasted resources.

The team of legal professionals at Scott Law Group, PLC work with area entrepreneurs to chose the right business entity for their budding company.  At Scott Law Group, we will provide you with vital information as to the advantages and disadvantages of each entity.  Armed with this knowledge, we will assist you with all steps to forming your new corporate entity.  The first step to a successful business is a properly formed business entity, and with Scott Law Group, PLC you can rest assured your company is off to a bright start.  Call us today at (727) 754-5001 to schedule a free consultation.