Are you an entrepreneur looking to branch out and start a new business? Do you have an established business that you would like to solidify by actually forming a business entity? Then, you are in the right place because our firm can help! Whether you are a novice or an expert in the business world, turning your business into an actual entity offers you important legal protections and safeguards your business and your assets.* Our first step will be to discuss your needs and wants to decide on the best business formation for you and your company. There are issues that should be carefully considered such as taxes, personal liability, and ownership rights. From there we will handle all your needs ensuring that all relevant paperwork is properly drafted, properly executed and properly filed.
We receive a lot of questions about our business formation service and exactly what it entails. To give you a better idea of what is involved, we have briefly outlined some of the potential legal entities and answered some of the common questions that we receive.
What are the advantages of forming a legal entity?
First and foremost, as previously discussed forming a legal entity will protect you from personal liability. This is a very important step which minimizes the risk by creating a shield of protection making individuals no longer personally liable for any debts or obligations accrued by the business. Second, formally completing the business formation process gives your company more credibility, reassuring other businesses that it is safe to do business with you. Image is important, and lack of a legal entity status may give the perception that you are inexperienced or lack the necessary competency. Third, by forming a legal entity you are increasing your ability to raise capital. When borrowing money, many lenders simply will not authorize loans to an unformed business.
What is the best legal entity for my business?
Limited Liability Company (LLC)
A very popular choice is the Limited Liability Company. The formation of this legal entity gives the members the ability to have a say in the decision-making and management of the company. However, the members may do so without ever being more personally liable than their actual contributions to the LLC. For instance, if the LLC runs up a debt that the company is no longer able to pay, the members are not personally liable for this debt because they are protected by the business entity. However, generally any tax obligation is passed to the members personally. The specific obligations s of this arrangement can be more complicated, depending upon the specific situation and facts.
A C-Corporation is another option that also affords many advantages as well as some disadvantages. Many choose this option for the insulation it offers its shareholders from personal liability. Except in very limited circumstances, shareholders never have to worry about their personal assets being taken by business creditors if the businesses is not able to keep up its required payments.* On the other hand, one trait that turn many off from forming this legal entity is the way that it is treated for tax purposes. With this business formation, the C-Corporation is actually treated as a separate, distinct taxpayer. Therefore if a dividend is distributed to the shareholders “double taxation” occurs, meaning that the corporation is first liable for the taxes on any profits that are made. On top of that, the shareholders are also personally liable for taxes on their dividend, making both pay taxes on essentially the same profits.
For those who believe a C-Corporation is the right fit but do not want the “double taxation” an S-Corporation may be the best option. With the same characteristic traits of a C-Corp, the big difference is the way that it is treated for tax purposes. Instead of receiving tax obligations at the corporate level and the individual level, the tax obligations pass through the corporation and instead are passed to the individual.
What is the next step after choosing the best legal entity?
Once a particular legal entity status is determined, there are additional steps that are needed to formalize this process. Such steps include registering your company and filing the appropriate paperwork with the Secretary of the Commonwealth of Massachusetts. Fortunately, these are all matters that we can handle for you so that you can feel reassured that you are both protected and are taking the necessary steps to further your business goals.
Do not delay…
Ultimately, running a business without the protection of a business entity is incredibly risky and could lead to unforeseen liability. Do not take this unnecessary risk and leave yourself and family vulnerable to a variety of suits. The above section details a variety of the business entities that might work for your business. Which legal entity is the best for you can be decided only after specific details are discussed.
Do not delay and leave yourself unnecessarily exposed! Contact our firm today so that we can discuss in-depth all of your business needs.
*Please note that there are no guarantees and there are exceptions to the general rule. Fortunately, as your counselor we can advise you on what actions should be avoided so that this shield of protection remains intact.