So You Want to Be or Are a Small Business Owner
So You Want to Be or Are a Small Business Owner
Transitioning from a sole proprietorship to a legal entity structure (whether a corporation, limited liability or partnership) can be a daunting task without appropriate legal assistance. Small business owners must understand how various laws will affect employment matters, taxes, insurance and contractual relationships with other parties. The type of legal structure you choose for your business will play a huge role in your success (or failure), so it pays to have competent and affordable legal advice. Ultimately, you (and your business associates) will have to make that decision for yourself (yourselves), but Jordan Guydon LLP can help you make informed legal and business decisions and make the process as stress-free as possible. We focus on providing legal assistance to business start-ups and small businesses!
Jordan Guydon LLP’s business attorneys can:
Set Up Your Business, and explain the differences between the various types of legal entities, the tax treatment of each type and recommend the appropriate legal entity structure based upon your short and long-term business objectives.
Explain Employment Laws, and discuss the legal requirements of having employees, including hiring and firing employees; fair employment laws; wage and hour laws; wage withholding; worker’s compensation; unemployment insurance; and, OSHA compliance.
Discuss Contractual Relationships, and explain the basics of business contracts law and the relevance of standard business contract provisions. We will also discuss the implications of entering into a joint venture or other contractual relationships with another business.
Provide Guidance for Government Contracts, and explain the requirements to participate in various preferential programs available to small businesses seeking to do business under contracts which are funded by the Federal government or a state government. We will also explain what additional responsibilities a small business must assume and duties it must perform generally in accordance with the terms of government contracts, including legally mandated regulatory recordkeeping and reporting requirements.
Recommend Risk Management Strategies and Provide Accounting Assistance, and explain the basics of insurance coverage, including general liability, worker’s compensation, directors’ and officers’ insurance, and business auto insurance. We will also discuss strategies and best practices to prevent lawsuits and how to protect your business against potential litigation. We will address basic accounting and fiscal control matters and, if necessary, refer you to a network of accounting professionals who regularly assist small businesses with setting up accounting systems and tax related matters.
Still Want to Be a Small Business Owner?
The rewards of being or becoming a small business owner are many. Proper planning and the assistance of competent and affordable legal advice will play huge roles in the success of your business. Jordan Guydon LLP can help you make informed legal and business decisions. Contact us for a free initial legal assessment to learn how we can help you plan for success.
WE CAN HELP!
Although creating and maintaining a corporation or a limited liability company (“LLC”) will probably be more complex and costly than forming a sole proprietorship or partnership, it may be worth it for your small business depending upon the type of work you plan on doing. Perhaps the main reason you want to organize your business as an LLC or corporation is to shield yourself from any personal liability that may arise from your small business’ dealings.
Although LLCs and corporations are alike in many respects, what truly sets a corporation apart from the other types of business structures is that a corporation is its own legal and tax entity. A corporation pays its own taxes on any profits that it keeps and the owners of a corporation only pay income taxes on monies they draw from the corporation in the form of salaries, dividends and bonuses.
A LLC, just like a corporation, provides limited liability to the owners of the LLC for the business’ liabilities, including debts, judgments and others. Where the LLC differs from a corporation, however, is in terms of taxes. Unlike a corporation, a LLC is not its own, separate tax entity, and the owners of the LLC must pay personal income taxes on their share of the profits that the LLC keeps during the tax year.
Organizing your business as a corporation or a LLC makes sense in two situations. First, if the business is engaged in a dangerous activity that makes it more likely to be sued, or if the business has the potential of racking up large amounts of debt, then a corporation or a LLC may be a good idea to shield the owners from personal liability. Second, if any of the owners of a business have large amounts of personal assets that they want to shield from any potential liability associated with the business, a corporate or an LLC could be the best option.
Deciding whether or not to form a corporation or organize an LLC is an important choice to make when starting your new business or reorganizing your existing business(es). Other types of business legal structures include sole proprietorships (which are very limited in scope) and, partnerships (which do not provide the same protections from personal liability). Each legal structure has certain advantages and disadvantages. Whatever type of legal structure you decide to use, the decision ultimately should at least be based upon consideration of the below factors and a careful analysis of the nature and needs of your business. Following is a comparative discussion of certain key pros and cons of forming a corporation versus organizing an LLC.
FORMING A CORPORATION
Owner Protection from Legal Liability: Once a new business’s owner(s) successfully completes the incorporation process, the owner(s) have a limited amount of legal liability for the corporation’s business activities and debts, because in the eyes of the law the corporation is a separate entity. In order to maintain this limited liability, the corporation’s owners must follow a number of legally required corporate formalities.
Ability to Attract Large Number of Investors: The corporation’s ability to issue stock is a strong selling point to those willing to invest capital in a business venture.
Power Structure: The corporate business form has an established power and management structure – i.e., directors, officers, and shareholders. Each group has its own set of legally defined roles and responsibilities within the corporate framework. An elected Board of Directors manages the corporation’s business affairs; the officers execute the Board’s directives and run day-to-day operations. Shareholders receive reports regarding the financial status of the corporation and receive dividends without having to provide any labor or input.
Certain Benefits to Shareholders: Because of the setup of a corporation, the business will probably be able to deduct the costs of the health insurance or other paid benefits from its profits, and the benefit provided to the employee is not considered income. This is a great benefit of forming your business as a corporation. To contrast, an LLC can only deduct a portion of the cost of the health insurance (and other benefits) premiums paid for the employees.
Stock and Stock Options for Employees: Especially for larger businesses, the corporate business structure offers an appealing opportunity to retain employees and attract potential employees — stock benefits and stock options (the employee’s right to buy stock at a locked-in price).
Time and Cost of Incorporation: The incorporation process can be expensive and time-consuming. A number of documents must be prepared (including the new corporation’s articles of incorporation and bylaws), and filing and other periodic fees must be paid to your state’s Secretary of State office (or similar business filing agency).
Following Corporate Formalities: All corporations are required by law to observe a number of corporate formalities to ensure that the corporation is operating as a separate entity, independent of the business’s owners. These steps include holding regular meetings of directors, keeping records of corporate activity, and maintaining the corporation’s ongoing financial independence. Only shareholders who are also officers or directors have any role in management of the corporation. If shareholders dislike the direction the corporation is taking, it is very difficult to have any impact on changing that direction.
Potential Tax Liability: The profits from traditional corporations may be “double taxed.” That is, the corporation itself is taxed for any profits earned, and any individual stockholder who earned profits from the corporation (in the form of paid “dividends”) are also taxed. This occurs most often in larger corporations, and may not be an issue for stockholders and owners of smaller corporations, who often work for the business itself and are paid salaries (which are tax-deductible for the corporation) rather than dividends. One solution to the double-taxation problem is electing “S” corporation tax status.
ORGANIZING A LLC
Flexible and Simple Management Structure: Many small businesses may find that the flexibility and simplicity of a LLC makes it the better choice when it comes to forming as a corporation versus an LLC. The members of a limited liability company either manage the business affairs of the company themselves or appoint a manager to operate the company. No group of individuals stands between the members and the managers (like a Board of Directors in a corporation). There is a great deal of flexibility in determining a management structure for the company; and the members can adopt a structure best suited to the particular needs of the company.
No Double Taxation: A LLC may elect to be treated like a partnership for income tax purposes. If this election is made, then all income is taxed proportionately to each of the partners who report it on their personal tax returns and the LLC is not taxed as a separate legal entity. Nevertheless, active members are subject to self-employment tax for Social Security and Medicare. If you plan on your business owning property, you will seriously want to consider forming your business as an LLC to avoid the problem of double taxes.
Versatile Tax Attributes: The business profits and losses can be allocated to the owners along different lines than ownership interest (for example, a 10% owner may be allocated 30% of the business’ profits). Owners can choose how the LLC will be taxed, either as a partnership or a corporation.
Owner Protection from Legal Liability: Owners (i.e., “members”) of the business enjoy limited liability for the business’ debts, judgments and other liabilities, even if the owners engage in significant control of the business.
Higher Costs: More expensive to establish than a sole proprietorship or partnership.
Potential Limitations on Raising Capital: Although LLCs work great when there are only a few owners of a business that expect to have a hand in the dealings of the business, the LLC structure starts lacking when the number of investors and owners increases.
Employee Retention: Unlike a LLC, a corporation has a great incentive system built directly into the structure of the business that can help small business retain great employees. Corporations can offer their best employees stock options that, in addition to providing an incentive for employees to remain with a business, also provide an incentive for an employee to continue working diligently for the business. Offering these stock options is an easier way to get employees a membership interest in the business, unlike LLCs where it can often be difficult and complex to get employees into the ownership/membership circle.
Potential Control Issues: Subject to agreement, each member may have rights in management and may contractually bind the company. The possibility of disagreement and voting deadlock exists.
STILL UNSURE ABOUT WHETHER TO INCORPORATE A CORPORATION OR FORM A LLC?
The type of legal structure you choose for your business will play a huge role in your success (or failure), so it pays to do your homework before deciding. Ultimately, you and your business associates will have to make that decision for yourselves, but Jordan Guydon LLP can help you make an informed legal and business decision and make the process as smooth as possible. Contact us for a free initial legal assessment to learn how we can help you plan for success.
WE CAN HELP!
For more information, Please call 703.865.8699 or email
If you are trying to build your business without the help of professionals such as lawyers and accountants, you are not alone. It is not uncommon for entrepreneurs of small businesses to save money by taking on the title of accountant, marketing manager, and even attorney. Large businesses generally have in-house lawyers (lawyers employed by the company) and retained lawyers (outside law firms) to assist them with important legal matters.
Taking on complex legal matters without the assistance of a competent and trusted lawyer could result in the financial ruin of your small business. Worse, acting as your own attorney could threaten your personal assets. We therefore recommend that you engage the services of an attorney that you trust, to assist you in reaching your business goals and objectives.
At JORDAN GUYDON LLP, our goal is to provide you with the best attorney for all of your business needs. We have decades of experience in navigating the sometimes overwhelming legal challenges encountered by small entrepreneurs, business owners and government contractors in particularly.
Following are a few ways in which an attorney may be able to help you and your small business:
- As a government contractor, although you may not need to do so today, at some time, you will need to pursue and capture more significant government contracts (in quantity and scope) if your business is going to grow. Larger and more complex contracts inevitably attract more competition. To win such a contract, you may find it necessary to file a bid protest if your company received unfair treatment or otherwise the award of the contract was not in accordance with government contracts law and policy. Similarly, if you win a contract award, you may find it necessary to engage the services of an attorney to intervene in a bid protest filed by one or more of the unsuccessful bidders, in order to protect your contract award.
- If you are attempting to grow your company by purchasing or merging with another company, you will almost certainly need the counsel and representation of an experienced attorney to ensure that you get what you pay for. On the other hand, if you are trying to sell your company to a larger business, and maybe on the verge of a financial windfall including generational wealth and financial security for you and your family, you will also need an experienced attorney to assist you in assessing and addressing important details of the transaction, including tax implications and/or environmental concerns that could turn a profitable transaction into a disaster.
- In addition, it might not be important today, but, in the future, you may find yourself being sued or needing to sue another party for breach of contract, In that case an attorney is exactly what you need
- As a participant or candidate for participation in the Small Business Administration 8(a) Program, the Verified Service Disabled Veteran-Owned Small Business Program, or other small business programs, you may need advice regarding the subtleties of certification or administration of these and other small business programs
- If you need assistance preparing or reviewing your company’s employment handbook, if you need advice regarding employee discipline or you are being sued for wrongful termination or discrimination, you will need the advice and representation of counsel
- You also need the advice of counsel for establishing the business entity most appropriate for your needs and objectives, drafting/reviewing contracts and nondisclosure agreements and much more…
While some tasks can be handled without the help of an attorney there are many situations which require the knowledge of someone trained to handle often times perplexing legal issues.
JORDAN GUYDON’s primary objective is to provide creative solutions that help you succeed. Our commitment to meeting and exceeding expectations is measured by the success of our clients. The team assembled by JORDAN GUYDON for any particular engagement is one that has the relevant diversity and depth of experience to meet our clients’ needs.
The experience and combined backgrounds of our team allow us to render efficient, professional and high quality legal services in real estate, banking, securities, government contracts, and civil litigation. In addition, our attorneys have broad professional and education accomplishments, including experience as government lawyers in the Department of Defense and the Securities Exchange Commission, experience in some of the world’s largest and most renowned law firms, editors of the law review, Masters of Business Administration, Masters of Public Administration and Masters of Laws in Government Contracts. We hope this post provides you sufficient information to assist you in understanding when to engage the services of an attorney to assist you with your new or existing business and how a relationship with an attorney could greatly benefit you and your company. JORDAN GUYDON LLP is here to help with anything you need for your business. If you have legal questions, we’re here to answer them.