Legal Considerations for Formation

Choice of Entity Type

• Sole Proprietorship: Simple to set up, but no liability protection.
• Partnership (GP, LP, LLP): Shared ownership, liability depends on type.
• LLC (Limited Liability Company): Liability protection, flexible management.
• Corporation (C-Corp or S-Corp): Strong liability protection, more complex.

Liability Protection

• LLCs and corporations provide personal asset protection from business liabilities.
• However, sole proprietorships and general partnerships do not.

Formation Requirements

• Must register with the state (LLC/corporation).
• Choose a unique name, register a registered agent, and file Articles of Organization or Incorporation.
• Draft internal governance documents (Operating Agreement, Bylaws, etc.).

Licensing and Permits

• Local, state, and federal licenses may be required depending on the business type and location.

Intellectual Property

• Protect brand and products through trademarks, copyrights, and patents.

Tax Considerations for New Businesses

Federal Tax Classification

• Sole Proprietorships and Single-member LLCs: Pass-through taxation.
• Partnerships and Multi-member LLCs: File Form 1065; income passes to owners.
• S-Corporations: Pass-through taxation with self-employment tax savings.
• C-Corporations: Double taxation (corporate and shareholder level).

State and Local Taxes

• Income/franchise taxes, sales/use taxes, and gross receipts taxes vary by state.
• Additionally, LLCs often pay annual fees or franchise taxes even if income is zero.

Self-Employment Taxes

• Sole proprietors, partners, and LLC members typically pay self-employment tax.
• S-Corp owners can reduce this by paying themselves a “reasonable salary.”

EIN (Employer Identification Number)

• Required for most entity types, especially those with employees or multiple members.

Payroll and Employment Taxes

• Must register with state and federal tax authorities if hiring employees.

Record-Keeping and Accounting

• Corporations and some LLCs have stricter requirements for financial records.

Other Considerations

• Investors and Fundraising: Corporations are typically better suited for venture capital or issuing stock.
• Exit Strategy: Entity choice can impact the ease and tax consequences of selling the business.

Would you like help deciding which entity type fits your specific situation?

Feel free to schedule a no obligation meeting