Ask A Lawyer

Ask A Lawyer

GENERAL QUESTIONS

• What are the different types of business formations available to me if I want to start a business?

  There are several types of business organizations: sole proprietorship, General Partnership, Limited Partnership, Corporation, S Corporation and Limited Liability Company. Each of these has their own benefits and you need to determine which one will best suit your needs. Often, an attorney or tax professional can help you determine which entity is right for you

• What is a sole proprietorship?

  This is the simplest of business structures because there are no legal requirements to comply with when you create this kind of business structure. It allows an individual to run a business as him or her self. In this regard, the individual owner and the company are seen as one and the same. This is the simplest way to do business but it does have ramifications, one of the most significant being that you and your assets are not protected from any business liabilities and you are held personally liable for the debts of the business.

• What is a partnership?

  A partnership is a structure that allows ownership of a business by more than one individual. When you structure a partnership, there are two types to choose from: a general partnership and a limited partnership. Generally, in a general partnership the owner will still be personally liable. With a limited partnership, there may be ownership liability but it may be limited. There are no legal requirements to start a partnership when it is not a corporation or limited liability company. While legally you do not need to have a written agreement, it is always a good idea to have one. The partnership agreement will spell out the understanding between the partners including their role in the running of the business, the division of profits and losses, who has authority and control and various other issues. If a partnership agreement does not exist and a problem arises, the state partnership law will determine the obligations of the partners.

• What is a corporation?

  A corporation is a separate legal entity that provides limited protection from liability. A corporation can be owned by one person or a group of people. When you structure a corporation, there are two types to choose from: a C-Corporation and an S-Corporation. The differences between the two involve tax issues and shareholder restrictions. There are state laws that govern the formation of a corporation. In general, to establish a corporation, you will need to prepare Articles of Incorporation and Bylaws and issue stock. As a corporation, there are business formalities that you will need to follow such as board of director and shareholder meetings.

• What is an LLC?

  A limited liability company (LLC) is a separate legal entity that allows you to combine the management aspects of the partnership with the limited liability protection of a corporation. With an LLC, the owners can report their business gains and losses on their personal tax returns. There are also advantages with regard to tax issues and management flexibility of the LLC. An LLC. But just like a corporation, there are legal formalities that you must follow in order to maintain your status as an LLC.

• How do I create a business plan?

  There are three basic areas that need to be addressed in a business plan:

  1. Business concept - discuss the industry, your business structure, your particular product or service, and how you plan to make your business a success.

  2. Marketplace section - describe and analyze potential customers, who are they, where are they, what are their buying habits. Describe the competition's strengths and weaknesses and how your strengths outweigh those of your competitors.

  3. Financial section - Income and cash flow statement, balance sheet and other financial ratios, such as break-even analyses.