You have an idea for an innovative product or new service and you are interested in forming a new business entity. As your small business lawyers, we will assist you in forming the most appropriate business organization and help you decide whether you should organize as a limited liability company (LLC), partnership, S corporation or C corporation. Each option has its advantages and disadvantages, and we will help you select the option that best fits your needs and your goals. We understand that you can go online and buy the forms: we think we can do more – tailoring your business form to fit your particular needs.
We like to talk with our clients specifically about corporate governance issues. If your business is starting out, we will help you draft the bylaws or operating agreement for your company. We will help you decide how you will regulate your company’s activities with the outside world. Additionally, we will also help you decide how you will regulate your company’s internal affairs and management, such as the procedures for meetings or distributions, as we draft company bylaws or operating agreements. Indeed, we will craft bylaws or operating agreements that will benefit you to greatest effect as they govern aspects of your company’s internal and external affairs, including corporate compliance, corporate governance, risk management, business ethics, and corporate social responsibility matters.
Once we have decided on the appropriate form of organization, we will prepare the articles of organization and operating agreement for a LLC, the articles of incorporation and bylaws for a corporation or the partnership agreement for a partnership. We will also prepare when necessary a stock purchase agreement or a membership interest purchase agreement.
Furthermore, we have also advised on, reviewed and prepared business plans for our clients. Consequently, we have helped our clients put together potent proposals to potential investors, including possible lenders, borrowers, and investors. We will assist you through the process of structuring, negotiating, and closing transactions – including loans, various forms of debt, and even venture financing – so that you are informed on various funding mechanisms for your business.
We will register your new company and file with the appropriate agencies the forms that you will need to operate. And, through our personalized approach to business formation, you will have not only the business that you want but also a business that is practical and manageable. We have more resource materials on startups and business formations here.
FAQs – Business Formation Law
What are the advantages and disadvantages of creating a legal entity for my business?
Creating a legal entity, such as a limited liability company or a corporation, has many advantages such as
- One of the most important advantages is insulating your personal assets from business creditors. If your business has incorporated, it can contract in its own name. If a creditor is attempting to collect a debt from the business, it cannot sue you personally unless you have guaranteed the debt or unless you have not maintained the affairs of the business separate from your personal affairs.
- In creating a legal entity, you can instill trust and confidence in customers, clients, and partners by operating as a separate entity, which will enhance the credibility and professionalism of your business.
- You will have an easier time to access funding. Investors and lenders favor dealing with structured entities that have defined ownership and governance structures.
- You may be eligible for certain tax benefits which can include deductions, exemptions or preferential tax rates that can potentially lower tax burdens.
The disadvantages include corporate compliance requirements, reduced privacy, limited personal control, and many required pre-and post-formation legal administrative processes. As a business formation attorney, we ensure that you have clarity of all the aspects at the time of incorporation of your business.
What are the requirements for forming a business?
The requirements for forming a business vary depending on the jurisdiction and the type of legal entity being established. You may form a new business in one of the 50 states, the District of Columbia, or even one of five U.S. territories. Despite the varying jurisdictional requirements, there are common requirements to consider, including the business name, the business structure, the articles of incorporation, the designation of a registered agent, business license and permits, an employer identification number, recognition of state and federal compliance regulations, and a separate bank account for the company. As any experienced business formation lawyer, Rosten Law has developed a checklist that lists a number of factors to take into consideration during the formation of a business.
What is the difference between an S-corporation and a C-corporation? Is one better than the other?
The main difference between an S corporation and a C corporation lies in their tax treatment and ownership requirements. Each has its own advantages and considerations. S corporations have a “pass-through” tax structure, which means that the profits and losses of the business are passed through to shareholders. The business entity does not pay federal income tax at the corporate level. The S corporation issues K-1s to the shareholders, who then report the income on their individual returns.
There are restrictions on S corporation ownership. Only U.S. citizens or resident aliens may own shares in an S corporation. An S corporation cannot have more than 100 shareholders and cannot be owned by other legal entities, such as LLCs, corporations or partnerships.
C corporations are separate taxable entities and subject to double taxation, which means that they pay corporate income tax on their profits. When shareholders receive dividends, they are then responsible for personal income tax. C corporations have no restrictions on ownership and can deduct a wider range of business expenses. Usually, a C corp is the vehicle of choice for institutional investors.
As a businesses formation attorney, we have extensive expertise in all type of incoirporation ranging from LLC formation to C-corp, and managing other business formation compliances.
What are the possible legal structures for my startup?
There are several possible legal structures for a startup. The most common options are limited liability companies and corporations. If there is only one owner, you may also run your small business as a sole proprietorship and report your income and expenses on a Schedule C come tax time. If there are two or more owners, you may form a partnership, which issues K-1s to the partners.
During the time of incorporation, we understand various aspects as your incorporation lawyer, and structure accordingly.
How do I protect my business ideas during the process of business formation?
To protect your idea, you may want your partners and potential investors to sign a non-disclosure agreement (NDA). NDAs are legal contracts that require recipients of the information to keep the information confidential. Once your startup is formed as a legal entity, these confidentiality protections may be embedded in your agreement with your partners and investors. If you are not ready to form a legal entity, then you should consider signing a pre-incorporation agreement, which may also contain confidentiality provisions and other protections. And even before business incorporation, you should explore intellectual property protection options such as trademarks, copyrights, and patents. Generally, we take care of all these aspects as business incorporation lawyer of our clients.
What are common mistakes to avoid during business formation?
During business formation, it is important to avoid common business and legal mistakes such as:
- not memorializing in writing your agreement with partners or investors;
- choosing the wrong business structure;
- failing to understand tax implications;
- ignoring legal and regulatory obligations; and
- neglecting intellectual property protection
When planning your incorporation, we ensure as your business formation attorney that all these aspects are well taken care of.
What is the timeline for starting a business?
Filing the papers to form a legal entity is relatively swift. What takes longer is memorializing an agreement among the partners, or members, or shareholders. For a partnership, you will need a partnership agreement. For a LLC, you will need an operating agreement, otherwise known as a limited liability company agreement. For a corporation, you will need bylaws and you may also have a shareholders’ agreement. It is better practice to have these agreements in a form ready to sign at the time that that the new business is formed.
Why are many businesses formed in Delaware? Why should I consider Delaware rather than the state in which my business is located?
Delaware is a business-friendly legal environment and has well-developed corporate laws. This legal environment provides stability and a strong framework for corporate governance.
In the event of a dispute among the members or shareholders, the state has a specialized court dedicated to resolving business disputes quickly and efficiently. The Delaware Court of Chancery is known for its extensive body of case law and can handle complex legal issues. Delaware also offers flexibility and protection for directors and officers, privacy and anonymity to business owners, and investor familiarity. Many investors are comfortable with Delaware corporate law and may even require companies to be a Delaware corporation before they invest.
While Delaware offers several advantages for businesses, it is essential to evaluate the specific needs and circumstances of your business before deciding to organize your small business there. Factors such as your industry, location, business activities, and long-term goals may influence your choice of jurisdiction for the formation of your startup. We help you evaluate all such factors as your business formation lawyer in dc so that you can make a more informed decision.
What information must I disclose to my chosen state of incorporation when I am forming my business? May the beneficial owners remain anonymous?
When forming a business and incorporating it in a specific state, you are typically required to provide certain information and documentation to the chosen state. The exact requirements may vary slightly from state to state, but they generally include the business name, the business address, and the purpose of the business. In a growing trend among states, you may have to disclose the ownership and managers of the company, although some states still allow you to remain anonymous. When advising you as your business incorporation attorney, we understand your priorities, objective and make recommendations accordingly.