How to Legally Start a Business
To start a new business, you must make vital decisions to organize things. You must also get the organization, management, operations, and finances right. Whether you’re bootstrapping or exploring unsecured lines of credit for bad credit, how you handle these issues will determine the direction of your business.
After conducting your feasibility studies and business plan, you must determine the type of venture you want your new business to be. You have four choices: sole proprietorship, partnership, limited liability company (LLC), and S or C corporation.
The Merits of Forming a Corporation
Understanding the merits and demerits of these choices is crucial to making an informed decision about your business’s direction.
A corporation is a legal entity that permits you to keep the business distinct from you and any partners.
The advantage of limited liability’s “corporate curtain” is that it safeguards you and any other partners’ personal assets from any liabilities or debts the business owes. Limited liability business owners may lose only what they invested in it. In other words, creditors cannot seize your personal assets for the business’s liabilities.
You can only use the venture’s assets to cover its debts if the business goes bankrupt or faces litigation. No owner must sell their home or any other property to cover their share of the venture’s liabilities. Business ventures with limited liability are limited liability partnerships (LLPs), limited liability companies, and corporations.
However, if your business is a sole proprietorship or partnership, you will be personally responsible for its debts and other losses.
The Merits of an LLC
When your business is a limited liability company (LLC), it blends the merits of a corporation with those of a sole proprietorship. LLC owners enjoy the limited personal liability misconduct or misdoing of the venture that owners of corporations also enjoy.
Further, LLC owners are not subject to the same tax conditions as a corporation. In addition, a limited liability company gives its owners some flexibility in determining the business management and allocation of earnings among owners.
What an S Corporation Entails
Those who decide to incorporate their venture as an S Corporation do not want the venture to pay income taxes. Instead, they want each owner to pay personal income tax or report a loss on their share of earnings or losses from the venture.
“To corporate as an S corporation, the firm must have only a class of stock and not more than a given number of owners. All owners must be United States citizens or legal residents,” says business law attorney Sasha Begum.
Other corporate ventures cannot own part of an S corporation. However, there are a few exceptions.
Understanding a C Corporation
A C Corporation is the most typical corporation type. You can have as many investors as possible, making it quicker to raise the capital needed for business operations.
Further, C Corporations can offer stock incentives to their workers. Corporate owners do not bear liability for corporate negligence or debts. Also, some C Corporation owners find it affordable to give their workers health insurance and retirement packages.
The Next Steps to Take
After deciding to incorporate your venture, you want to secure financing through a government grant, low-interest loan, or bank loan. You can also call for investors.
Then, you will register your business with your state and local government and get the necessary permits and licenses. It may also include a liquor license.
Next, you need a tax identification number from the Internal Revenue Service to file local, state, and federal taxes.
Ultimately, you will create operation, employment, record-keeping, and other essential policies. For an outstanding procedure, you can engage an active business law attorney to help you throughout the process.
