Entrepreneurs don’t just wake up one day and say, “Surprise! I’m open.” Before they hang up their shingle they need to attend to a host of details. These details include the legal documents that establish the company’s identity, organizational structure, and taxation.
First, consider forming a limited liability company (LLC) to establish your business as a legal entity. If two or more owners decide to form a partnership, an LLC or a Limited Liability Partnership (LLP) can be an attractive option. The LLP is like the LLC, but it is specifically designed for partnerships. In addition to their article of membership (or partnership in the case of an LLP), partners should negotiate and execute an operating agreement. This agreement sets guidelines for how the business will operate. It’s going to say how people vote, how decisions are made, who’s in control, who represents the business, and how to sell.
On the federal level, the IRS issues employment identification numbers (EINs) to new businesses. Small business owners quickly learn that obtaining an EIN is a necessity. Most independent business owners are going to hit this wall when they go to open a bank account. Visit the IRS portal at www.irs.gov to apply for free.
While some entrepreneurs operate as LLC’s, sole proprietorships or partnerships, others form corporations instead. Corporations require their own set of documents. Many of these will be similar to those needed for forming an LLC. Instead of forming Articles of Organization, you file Articles of Incorporation. Instead of an operating agreement, you’re going to set up bylaws. Instead of setting up ownership interest, you are going to be selling stock.
Corporations will often have more formality and will pose their own unique opportunities and challenges. The extra formality that corporations have can make it easier for outside investors to buy in and out of a business. But, the extra formality will often require more precise records and communications be sent to corporate directors and shareholders.
Consulting with an attorney, business consultant, or an accountant can help you determine which type of organizational structure makes sense for your business. These professionals are typically knowledgeable of tax implications and state requirements.
Solo owners who are the lone service provider in a company face different decisions than partnerships or corporations. If you take the owner out of the business, what is left? Solo owners should have documents saying someone can walk in and run the business if something happens to them. Powers of Attorney documents or a Trust can provide a back-up plan if something happens to the owner unexpectedly.
Once you hire employees, a new set of legalities surface. You’ll want to set up a payroll system to withhold taxes, obtain workers’ compensation insurance, post the required notices, and abide by other state labor laws.
Working with an attorney can help you develop a sound legal foundation for the business. A lawyer’s job is to think through terrible situations all day. They naturally assume the worst thing is going to happen and try to steer you in a direction so it doesn’t. Ready to talk business? Schedule your free consultation by calling 920-471-4337.
About Us: Attorney Devin Shanley is the approachable expert clients can trust. A native of Green Bay, Wisconsin, Devin has been developing legal solutions in his beloved hometown since 2012. Married to Mo and dad to two rambunctious kids, he has a soft spot for the Green Bay Packers, grilling out, and playing with his kids. His areas of practice are Estate Planning, Family Law, Business Law, and Non-Profit Organization Law. Schedule your free consultation by calling 920-471-4337.