This article is a service of James Rose, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a STARTUP Foundation Audit or a LIFT Foundation Audit, which include a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Mention "Nashville Universe" and receive either audit at half price.
One key point of a strong business foundation is separating your business identity from your personal identity. But what entity is best? Your Creative Business Lawyer and accountant each can review the specifics of your situation and assist you in making the best decision given your situation.
Once formed, your business entity must be well maintained to be deemed legitimate by courts, banks, and your clientele and stakeholders. This includes bylaws or operating agreement, stock certificates or membership interest, annual meeting records, and minutes and resolutions. Your entity should not be simply you and a corporate charter or LLC articles of organization.
Is an LLC (limited liability company) the best call for you? Some business owners in Tennessee glance at the Secretary of State registration fees of $100 for a corporation and $300 for an LLC and immediately decide on their entity based on savings of $200. Not a wise move.
Three major factors you should consider in choosing a type of business entity are: Liability protection, taxation, and convenience. For many businesses, an LLC is the best choice and the simplest choice.
LLCs are managed by either their members or their managers. A multi-member LLC provides additional asset protection over a single-member LLC.
The LLC—A Flexible Option
Liability protection, taxation, convenience—on each of these three major factors, the LLC is an attractive entity for the small business.
The owners of an LLC are generally not personally liable for the business’s debts. If the business gets sued or can’t pay its bills, personal assets are not jeopardized.
LLCs have options. You can choose to have the business profits pass through and be taxed on your personal tax return (like a sole proprietorship or partnership), or you can even choose to be taxed as an S-corporation, which could save you big money on taxes each year by helping you avoid a high self-employment tax.
The ownership structure of an LLC can be structured in almost any way you want. Decision-making authority, share of profits, voting rights - these issues and more can be decided by the owners. Also, the paperwork you file with your state to create and maintain an LLC is usually minimal.