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This article will explain when you can cover legal issues on your own or with minimal attorney assistance and when you will definitely need a business lawyer. There are certain matters that are fairly straightforward and/or not unduly difficult to learn and therefore do not require the services of an attorney who charges at least $200 per hour.
When deciding which entity to select for your law firm, your decision will be based primarily on flexibility in the ownership structure, limited liability protection, and tax reasons.
You should remember to include the name of the law firm on any legal documents such as a loan document or lease, to avoid exposing yourself to liability even with the limited liability protection. This limited liability protection gives a business owner peace of mind but there are issues associated with a Corporation.
Prevention does not necessarily involve hiring an attorney, though consulting with one wouldn't hurt. By the time you or your business is sued, the preventable damage has been done and the only question that remains is how much you'll be paying in attorney's fees, court fees, and damages.
proprietorshipEasy exit: Forming a proprietorship is easy, and so is ending one. As a single owner, you can dissolve your business at any time with no formal paperwork required.
Simplicity of organization-this is the most common form of business organization in the United States because it is the easiest and least expensive to establish.
Sole Proprietorships A sole proprietorship is perhaps the simplest of all the different types of business structures. Unlike LLCs and corporations, there are no papers to file and no fees to pay in order to set up a sole proprietorship.
4 Types of Legal Structures for Business:Sole Proprietorship.General Partnership.Limited Liability Company (LLC)Corporations (C-Corp and S-Corp)
Which of the following forms of business ownership is the easiest to establish? Sole proprietorship.
sole proprietorshipA sole proprietorship is the easiest and simplest form of business ownership. It is owned by one person. There is no distinction between the person and the business.
A sole proprietorship is the simplest form of business. It is an unincorporated business, conducted by an individual or a married couple. Starting the business requires no written agreements. However, the owner of a sole proprietorship is personally liable for all business debts.
Review Your Returns You'll find your corporation classification on your business returns. You can review previously filed tax returns or ask your accountant to review the returns. All corporations must file an annual income tax return. C corporations file IRS Form 1120 and S corporations file Form 1120S.
Limited Liability Company Definition: A form of business organization with the liability-shield advantages of a corporation and the flexibility and tax pass-through advantages of a partnership. Many states allow a business form called the limited liability company (LLC).
(b) Creditorship. (d) Corporation. (b)Creditorship is not a form of business organization. The other choices are incorrect because(a)soleproprietorship, (c) partnership, and (d) corporation are all forms of business organization.
An overview of the four basic legal forms of organization: Sole Proprietorship; Partnerships; Corporations and Limited Liability Company follows. Please also review this summary of non-tax factors to consider.
The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute.
Corporations or S corporations must register with the state as well. They must prepare bylaws and other documents, and they have a far more complicated ownership structure. You'll almost certainly need an attorney to help you start any type of corporation, An S-corp starts as a corporation then elects S corporation status with the Internal Revenue Service. If it sounds complicated, it is. You might need help.
Partnerships and LLCs must register with the state. Documents must be prepared, such as a partnership agreement or an LLC operating agreement. You might be able to register online with your state or use an online service to register your business, but it might be a good idea to use an attorney if your business is at all complicated.
In a partnership, both partners are liable if there is a problem.
If a franchisee fails to follow the franchise agreement, he or she may lose the franchise and all the money invested in it. True or false. a mission statement defines the purpose of the business and a vision statement defines its future. The differenct between a mission statement and a vision statement is. liability.
If a business has only one owner, it does not need an Organization and Management section.
Most state, federal, and local regulations apply only to large corporations.
Typically, there are four main types of businesses: Sole Proprietorships. Sole Proprietorship A sole proprietorship (also known as individual entrepreneurship, sole trader, or proprietorship) is a type ...
Corporations are allowed to enter into contracts, sue and be sued, own assets, remit federal and state taxes, and borrow money from financial institutions. . Before creating a business, entrepreneurs. Entrepreneur An entrepreneur is a person who starts, designs, launches, and runs a new business.
Limited Liability Company (LLC) A limited liability company (LLC) is a business structure for private companies in the United States, one that combines aspects of partnerships and corp. , and Corporations.
A sole proprietorship is an unincorporated company that is owned by one individual only. While it is the most simple of the types of businesses, it also offers the least amount of financial and legal protection for the owner.
Unlike partnerships or corporations, sole proprietorships do not create a separate legal identity for the business. Essentially, the owner of the business shares the same identity as the company. Therefore, the owner is fully liable for any and all liabilities.
This means that every partner’s personal assets can be used to repay the liabilities of the partnership. This also means that each partner is responsible for every other partner’s actions.
Limited partners only take on as much liability as their financial stake in the business. However, as limited partners, they are not involved in management decisions and do not have any direct control over the company.
Cost of startup and operations, control, taxes, and liability issues are important factors to consider in choosing a business type.
The two basic business types for tax purposes are corporations that are separate from owners and pass-through businesses that file their business taxes with their personal tax returns. Cost of startup and operations, control, taxes, and liability issues are important factors to consider in choosing a business type.
Taxes on the business and how the business or owner pays taxes. Liability of business owners for the debt of the business, for actions of other owners, and for general liability.
Pass-through businesses are named as such because the tax liability of the business is passed through to the owner as part of the owner's personal tax return. For example, if a sole proprietor has a net income of $25,000 for the year on their Schedule C, that amount is added to all the other income of the person (and their spouse, if they have one), along with any business and personal tax credits, to calculate the person's total tax liability for the year.
You'll get lots of advice from people, but as you sort through it, consider taxation, control, cost, and liability issues. This article will unpack features, along with pros and cons, of each of the major business types ...
The corporation is formed with articles of incorporation under the laws of the state in which it operates. Corporations are costly to form because, in addition to the state registration, they must have a board of directors, keep regular meeting minutes and other corporate records, and report to shareholders.
LLC owners are called members, and an LLC may have only one member, called a " single-member LLC. "
The best way to make an informed decision when choosing a business structure is to speak with a business organizations lawyer who can provide legal advice based on your specific situation.
The following is an overview of the various types of business structures, which include sole proprietorships, partnerships (both general and limited), limited liability companies (LLCs), corporations, nonprofit corporations, and co-operatives (co-ops).
A sole proprietorship is perhaps the simplest of all the different types of business structures. Unlike LLCs and corporations, there are no papers to file and no fees to pay in order to set up a sole proprietorship. You are the sole owner of your business, and you simply have to begin business operations in order to create a sole proprietorship.
Partnerships. A partnership is like a sole proprietorship in that it is simply a business that is owned by two or more people. Similarly to a sole proprietorship, the owners of a partnership do not need to file any papers or pay any fees to set up a partnership, the partnership simply begins when you start a business with one or more other people.
A nonprofit corporation is simply a corporation that was formed with the intent to carry out a purpose that is charitable, educational, literary, religious, or scientific. A nonprofit corporation can solicit charitable givings from the public, and can also seek to raise funds by seeking private grant money from companies and individuals. One of the largest benefits to a nonprofit corporation is that the money that is taken in for the charitable purpose is normally not taxed by either the federal or state governments.
Also like a sole proprietorship, each partner will report their share of the business profits on their personal taxes as income, and each partner is personally liable for any debts, claims or other liabilities that the business is responsible for.
The general partners run the day to day operations of the limited partnership for the most part. The general partners are personally liable for any debts, judgments or other liabilities that the limited partnership has, except if the general partner is a corporation or a LLC. In addition, just like a partner in a normal partnership, the general partners in a limited partnership will share in the business profits and report this income on their personal income taxes. The limited partners are not personally liable for any of the limited partnerships liabilities, and are correspondingly not included in many of the day to day operations.
Limited Partnerships: Limited partnerships consist of one or more general partners and several limited partners. All general partners remain personally liable for debts and lawsuits unless the general partner is a corporation or a limited liability company.
Also known as a business form, a business type determines a company's internal organization, types of officers, legal organization, tax strategy potential for shareholders, and level of personal liability. These are the most common business types:
There is no limit to the number of shareholders they can have. Corporations have to document their organizational structure. This can include directors, who make strategic decisions, officers, who handle daily activities, and shareholders, who profit from the business's equity.
Sole Proprietorships. Sole proprietorships are just one individual, and they don't require licenses, paperwork, or fees to set up. The owner is the business and is personally liable for all debts, lawsuits, and judgments. The owner also reports profits and losses on his or her personal tax returns with a Schedule C.
Professional Limited Liability Companies: These are similar to LLCs, except all members must belong to the same profession.
Professional Corporations: Professional corporations (PCs) are compose d of professionals in the same field, such as attorneys or doctors. Typically, each owner remains liable for professional actions and malpractice. Nonprofit Corporations: Structurally, nonprofit corporations are similar to standard corporations.
Small businesses help people realize the American Dream. The general public has an overwhelmingly positive view of small businesses, placing them ahead of even churches and academic institutions. As a result, state and local governments often make it easy for small businesses to launch and thrive.
So if it is so simple, why doesn’t everybody pick this business form for their law firm? The key reason is that this business form does not protect the owner’s personal property if someone decides to sue the law firm. The legal terminology for this is that a Sole Proprietorship does not have “limited liability” protection. Instead, the law firm and the individual are considered the same person and if the business is sued or incurs debts, you, the business owner, will be personally liable. As you can imagine this can be a scary proposition as the end result of a bad business decision could be the loss of a home, car, or personal belongings. You should also note that even though you may face a low risk of being sued, this risk jumps significantly if you deal with vendors, hire employees or have clients visit your premises. Even a photo on your website can result in a law suit. As such, this entity is often not selected when people set up a law firm and instead a limited liability entity (a Corporation or LLC) is selected. Note though that there are special rules for setting up limited liability entities for lawyers and limited liability entitles do not protect you against malpractice.
When deciding which entity to select for your law firm, your decision will be based primarily on flexibility in the ownership structure, limited liability protection, and tax reasons. For a solo practitioner, your decision will be between a Sole Proprietorship (“SP”), Corporation (“C”) or Limited Liability Company (“LLC”) so those are the entities we will focus on. Let us look at the SP, C, and LLC in turn.
The LLC is a relatively new creation and a very common business entity form for new law firms. It was established to offer the business owner limited liability protection while addressing both of the problems outlined regarding a Corporation above. The first is the formality associated with setting up a Corporation. To address this, a LLC has the advantage that the business owner is not required to adhere to the strict Corporate formality. Instead, a flexible operating agreement is drawn up to describe how the LLC will operate. A LLC also addresses the problem of double taxation as a LLC is a “pass through entity.” This means that all of the earnings in the LLC are taxed as if you earned them personally. As such, the entity itself is not taxed but rather the earning “pass through” to you. The tax preparation is much simpler than a Corporate tax return and is very similar to how you would file as a Sole Proprietorship.
Accordingly, if someone sues the law firm they can only reach the assets in the business and not your personal assets. The same concept applies to debts but as a practical matter, if you have a new Corporation a bank or other lender will usually ask for a personal guarantee as they are fully aware that a Corporation has limited liability. You should remember to include the name of the law firm on any legal documents such as a loan document or lease, to avoid exposing yourself to liability even with the limited liability protection.
As you are a lawyer you cannot just set up a “regular” LLC or Corporation. Instead, you must set up a Professional Corporation or a Professional LLC. The set up is the same as a regular LLC or Corporation except that you must show the Government your professional license. All this entity type really means is that the limited liability will not protect the business owner against malpractice. As such, if you are a professional you must also get malpractice insurance. The idea here is that the Government does not want professionals setting up a limited liability entity and then shirking their professional responsibilities. The entities are the same as a regular Corporation or LLC in all other regards. Now let us take a look at the limited liability entities.
BOTH a Corporation and a LLC may elect S status and if they do, they will avoid self-employment taxes on at least a portion of their earnings. Here is a brief and simple example. An entity (LLC or Corporation) makes $100,000 and the owner assigns themselves a salary of $60,000 (salary must be reasonable in order to qualify). When this occurs, and S status is elected, the owner will only have to pay self-employment tax on the $60,000 rather than the full $100,000. Do not confuse self-employment tax with income tax as income tax is paid on the full $100,000 and this cannot be avoided. In order to be eligible, you must file the S tax status election with the IRS right after you set up the LLC or Corporation (they give you around 60 days).