This is the next post in my series on starting a business in Long Island or elsewhere in the state of New York. My last article outlined the key subjects which this series will address. It also emphasized the importance of working with an experienced business lawyer to help you in the key early stages of your new venture. By sharing your business plans with an attorney, counsel can help you select the type of entity that best suits your current and future business objectives. The goal of this article is to provide basic information about the primary types of business entities. Because the choice of entity may differ depending on your specific circumstances, it is important to speak with an attorney understand the differences. Contact my office today to schedule an initial consultation.
Forming a separate business entity may shield Long Island owners from personal liability
When starting a new business or restructuring an ongoing business, owners can select from a variety of entity types. The primary entity forms include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. An owner should consider the particular type of business, future objectives, administrative responsibilities and personal liability concerns when selecting a business form. For example, sole proprietorships are perhaps the most simple form for an individual business owner due to their ease of formation and administration. It is important to understand, however, that this type of business is not considered a “separate entity.” It is merely an extension of the individual and the owner may be held personal responsible for the obligations of the business.
Forming an LLC or a corporation, on the other hand, establishes a legally recognized entity, separate and distinct from its owner(s). With limited exceptions for fraudulent or criminal behavior, so long as the owners observe “corporate formalities,” they will be shielded from personal liability for the company’s obligations. It is strongly recommended that these entities, even small businesses, establish bank accounts, maintain books and records of the company, and follow governance rules in bylaws or operating agreements. While these activities may increase administrative burdens on ownership or management, they will help preserve the liability shield.
Other considerations, such as taxation, raising future capital, or ease of transferring ownership may drive the choice of entity. For example, an owner who desires to raise capital by selling shares in a business may need to form a C-corporation depending on the number of desired owners. It may also be important to sell or transfer shares in an open market. A C-corporation, however, is subject to taxation at the entity level and at the shareholder level, also known as double taxation, which may be a potential drawback for the owners.
A business law attorney can help Long Island business owners decide how to best structure their venture
Understanding the differences between the various entity types can seem overwhelming. It is important to take this step in your venture seriously to avoid limiting your options in the future. By investing the time to consult with a business lawyer early in the process, you can make an informed choice for your company. If you need the assistance of a Long Island business attorney, then contact my office today. We also serve Kings County residents in Brooklyn, residents of Queens, those in Nassau and Suffolk Counties, as well as people in other New York areas.