If you have a business idea one of the first questions you’ll face involves deciding how best to structure your company. For those focused on all the things required to get the business off the ground, this question can feel like a distraction. Though it may not be your area of interest, questions about business structure and formation are crucially important and should be carefully considered. Remember, you’ll need to live with the decisions you make today years down the road, so give the issue some serious thought and take time to consult with a business attorney who knows the ropes.
The first factor that any new business owner will need to consider when debating business structures is liability. Are you in a business that runs a big risk of lawsuits? Those who are in litigious industries or who perform services that create the risk of legal liability should seriously consider incorporating or forming an LLC. This would offer valuable personal protection from business losses. On the other hand, those in industries with little risk of lawsuits or who don’t expect to incur large amounts of business debt might be perfectly comfortable operating as a sole proprietorship or partnership.
Taxes are undoubtedly complicated, but must be considered as part of choosing your business structure. The benefit of LLCs, sole proprietorships and partnerships is that taxes can be simplified. With these pass-through vehicles, you will only pay taxes once, on the individual level. That doesn’t mean that corporations should be overlooked. Though there is a risk of double taxation (taxes at the corporate level then again when distributions are made individually), there are many tax breaks only available to corporations. Over time, these benefits can more than make up for any additional costs.
Administrative costs and burdens are seldom discussed, but important nonetheless. With some business forms, the cost of record-keeping can be quite high. Corporations have sometimes-burdensome paperwork requirements and there are costs to maintaining your legal status. The money and time demands might be too much for those without the cash or the patience to deal with them. In these cases, a structure such as a sole proprietorship or partnership may be better. The paperwork demands are greatly reduced and annual filing/registration costs are nonexistent or minimal.
When starting a new business you will have many, many things on your mind. All will seem important and demand your time and attention. Given this, it’s easy to give minimal thought to business formation. You’re an entrepreneur and want to focus on the work. It makes sense. But, it will benefit you and your business down the road if you think carefully before acting. Think about not only what structure may be easier or cheaper today, but what will serve you better down the road. The hope is that your business endures for years or decades to come. As a result, you should take the long view as it relates to business structure, choose something that is flexible and will grow with you and your business over time.
Minnesota Business Lawyers
It’s good to know that with the right help, establishing a Minnesota small business does not have to be a scary proposition. An experienced Minnesota small business attorney can help walk you through the process of setting up your new company and ensure it offers the maximum benefits for your individual situation. For more information, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.