It’s the new year and maybe your new year’s resolution is to start a business this year. If that’s the case, you need to create a strong legal foundation. This helps protect you personally against the liabilities of your business and gives you the framework necessary to grow your business.
Sole Proprietorships and Partnerships
When you go into business for yourself, you’re considered a sole proprietor. If you go into business with someone else, you’re considered a partnership. These designations are automatic. This means you don’t have to enter into a formal agreement to create a sole proprietorship or a partnership.
However, in a sole proprietorship or partnership, you are also personally responsible for the liabilities of your business. Even worse, if you’re in a partnership, your partner can enter into agreements on behalf of the business and you’re personally responsible for those agreements even when you don’t know about it.
How to Protect Yourself Against the Liabilities of Your Business
Creating a business entity can protect you against the liabilities of your business. That means, if your business gets sued, you don’t have to worry about losing your life savings, your family home, or any of your other valuable assets.
There are two types of business entities you can form, an LLC or a corporation. There are many different types of corporations, including S-corporations, C-corporations, social purpose corporations, B-Corporations, and nonprofit corporations. The type of corporation or LLC you form is based on the goals and objectives of your business.
Things to Keep in Mind When Choosing a Business Entity
Because everyone’s business is unique, there is no one-sized fits all solution. The appropriate business entity for you is based on your unique facts and circumstances. Some questions you may want to ask yourself in making this decision include:
What type of business do you have?
What are your business objectives?
Who your business partners are and what your relationship will be with those partners?
How will your business make money? Will you make money right away or do you anticipate spending more than you make in the early phase?
How will your business will raise money?
What kind of relationship do you want to have with your investors?
If you have questions, we are here to help. You can schedule a free strategy session with us by clicking here.
This article is provided for informational purposes only and should not be construed as legal advice. Read our disclaimer here.