Crucial Details to Consider Before Forming Your First Corporate Entity
COVID 19 has had many unintended consequences. One of these is the rise in the number of people considering going into business. Whether it was because they lost their job, or first saw the potential for a more flexible situation when offices went remote, queries about business formation haven’t been higher.
If you’ve decided to start your own business, the first thing you realise is you have so many decisions to make. One of them is what type of business entity would be best for you. Should you operate a sole tradership? Or invite friends as partners. Should I start a corporation? Or maybe a limited liability company (LLC)
Which business type suits me best?
You should probably start a sole tradership if you’re testing your business’s long-term viability. Sole traderships are easy to set up, but they expose the owner to financial and legal liability.
Depending on the partnership you establish with your friends, you can find yourself with the same problems as a sole tradership.
A corporation is a legal arrangement that allows a business to remain separate and apart from its owners. It is more expensive to set up than the sole tradership and partnership and there are complex rules governing their registration and taxation. There are C corporations, S corporations, and B corporations. This is best if your business is in a high-risk industry and plan to raise funds for expansion at some point.
The limited liability company or LLC is a mixture of the partnership and the corporation with better qualities of either. The LLC has the limited liability of the corporation but does not have a complicated tax structure. It also has the shared management benefits of the partnership. This is best for business owners looking to protect their assets.
While it may be more expensive to set up than a partnership or a sole tradership, it is relatively quick with little paperwork. You can set it up on your own, but for convenience, you can have someone do this for you as well. Have a look at this business owner’s review on MyCorporation, where they talk about their experiences with the LLC registration service at Corpnet. You can weigh whether going it alone or hiring a business services company may be right for you.
The LLC might be best for business owners planning to remain within the small to medium range, but there are some disadvantages you’ll want to consider. LLCs may need to be dissolved if one of the owners leaves. The owners are also considered self-employed and have to pay associated taxes and fees.
Other things you may want to consider
After deciding on your corporation type, here are a few other things to pay attention to.
The state you set up in
States vary in the regulations used to govern corporate entities, the fees to be applied at incorporation and the taxes to be paid. Be sure to set up your entity in the state that best suits you.
The name of your business
You’ll need to have a business name before you incorporate your business. Many states have regulations about what your business name can be. They also will not allow you to register your business if it has the same name as another.
How your corporate entity will be governed
Do you want to have full control of your profits and business affairs? Or would you prefer to run your business with a team, with shared responsibilities? Depending on which, you may need to file the by-laws that govern your company, how directors are picked and how shares are distributed.
A real-world address for your corporate entity
Before filing your documents, your business needs a physical address. This is so any business-related documentation can be sent there. In some cases, it may be more convenient to have an agent’s address as your registered office, such as when you file from out of state or from a foreign country.
The work you do here will be the foundation of your business, so you will want to ensure that your foundation is strong. Paying attention to these details and getting good advice on areas you’re not clear, will set you and your first corporate entity up for success.
