Topic: Business Formation
Build a strong business foundation
By Daniel M. Little, ATTY.
Your home requires a strong
structure to withstand time and the changes in the environment. Likewise your
business requires a strong structure from which it can grow, prosper, and avoid
disruptive changes in the business climate.
start your venture you should carefully consider the type of structure that is
best suited for your needs. The business structure you choose will provide you
with the foundation from which many major life decisions will be affected.
There are essentially
four types of business structures: sole proprietorships, partnerships (limited
or general), corporations and limited liability companies. The type of business
structure that is best suited to you depends on several factors, such as the
number of business owners, the need for limiting your personal liability, tax
consequences, dissolution concern and your personal goals.
Under a sole proprietorship, one person owns the
business. The advantages to this type of structure are total control over the
operations and the decisions of the business. However, one of the chief
disadvantages of this form of business is that you can be held personally
liable for any judgment rendered against the business. To protect you and your
family maintain sufficient liability insurance to cover your home and personal
A partnership is a flexible business
entity that may be utilized if more then one person will own the business.
Typically, each general partner has a say in the management of the business and
an interest in both the losses and profits.
general partner is jointly and individually liable for the debts and liabilities
of the business. An important consideration in a partnership is what will
happen when one of the partners dies, becomes incapacitated or wishes to leave
the partnership. It is essential that a comprehensive partnership agreement be
prepared to address the issue of dissolution as well as other rights, duties
and liabilities of the partners.
type of business structure is a corporation
(a corporation may be either a C corporation or an S corporation). A
coropration is a separate legal entity owned by shareholders.
advantage of a corporation is that the owners are not personally liable for the
debts liabilities, provided that the owners treat the business as a separate
legal entity and not merely an extension of themselves. If the shareholders disregard
this separation a court may decide that you are personally responsible for the
corporation’s debts and liabilities.
legislation has created a hybrid between a corporation and a partnership. This
hybrid is called a limited liability
company (LLC). This form of business structure has been available in much
of the United States for several years, but only became available in California
in 1994. The LLC combines the simplicity and flexibility of the partnership
with the protection from personal liability in a corporation.
If you have
any further questions regarding which business structure is best for you or how
your specific type of business can be transferred to your heirs, contact your attorney
your or me at (619) 656- 8848.