Business Entity Selection
If you own a business, do you have documents in place to help you conduct your business safely and professionally? Do you know what will happen to the business interests if you die or become incapacitated?
Having an “exit strategy” may prove very important to the continuity of your business. Part of our experience at McManus Estate Planning LLC is writing and reviewing business agreements.
If you are starting a business, Business Entity Selection is another important consideration. This simply means choosing the appropriate legal structure for your business. Different laws govern the different types of business entities, and each entity has a structure and features that are specific to it. Choosing the right entity for your business may provide you with legal protection of assets and with potential tax advantages.
Some of the most common types of business structures include the sole proprietorship, partnership (general or limited), limited-liability company, and corporation.
A Sole Proprietorship is owned entirely by one individual, who bears unlimited personal responsibility for its liabilities. A sole proprietorship offers no intrinsic legal protection for assets, including personal assets, and the owner is responsible for taxes on all of the business’s income. McManus Estate Planning LLC generally recommends that clients not form sole proprietorships.
In a General Partnership two or more people own and operate a business together. Each partner participates in operating the business and owns—equally unless otherwise stipulated in the agreement—assets and shares of the profits or losses. A general partnership does not protect the individuals against lawsuits brought about by one of the partners’ missteps. Liability can extend to the personal assets of all partners. McManus Estate Planning LLC generally recommends that clients not join general partnerships.
Combining features of a partnership and a corporation, a Limited Liability Company, or LLC (if owned by one person, a Single-Member LLC), must file articles with the state. Members of the LLC generally risk losing only the money they have invested into the LLC. Each member reports business income or loss on her or his personal income tax returns. If there will be partners who contribute capital and share in profits but do not take an active role in management, a Limited Partnership offers asset protection.
Laws govern the setting up of a Corporation, which is a separate legal and taxable entity. Owners’ assets generally are protected from the liabilities of a corporation. Important considerations when outside investment capitalizes a business include determining both whether or not investors will be allowed to vote and whether returns on investment will be in the form of income distributions or equity growth.
When you are ready to select the right legal entity for your business, McManus Estate Planning LLC will learn about your business in order to help you choose among the alternatives, to ensure the entity you choose aligns with your business objectives.
Contact our offices to explore business entity options and to write or review the contracts you plan to use in conducting your business.