As a small business owner, I often converse with other professionals who are looking to take the leap of faith and start their own business. Many entrepreneurs are hoping to turn their long-held dreams into a reality, but my job usually involves trying to convince them to take a few parachutes with first.
Here’s a short sampling of some typical questions I hear in most of these conversations:
1 – Which entity should I choose?
This question is almost always fact-specific. While there really is no one-size-fits-all way to form a business, there are numerous types of business structures. For example, a smaller one-man service-based startup may wish to operate as a sole proprietorship, because it is likely to have low liability and simpler accounting. The same company may migrate to an LLC or corporation when the owner is considering taking on salaried employees, selling products, or purchasing a new business property.
2 – Does this protect my house and my family from business debts and judgments?
The answer to this question is also fact-specific. Generally speaking, organizing an LLC or corporation creates a legal fiction; the company legally becomes a separate person from its owner. The result is that the company can make contracts, perform operations, own property, be insured and be sued, all in its own name. This means the owner’s personal home and property is free from creditors of the business; however, there are numerous situations where a court may “pierce the corporate veil” which will depend on the specific facts involved.
3 – How do I do my accounting?
This question should probably be answered by an accountant. However, the mantra that is often repeated is to keep business and personal property and accounts totally separate, because this avoids co-mingling resources. Additionally, the tax rules differ between sole proprietors and corporations (LLCs can be set up either way), and operating any payroll activity for yourself and for your employees will likely require a great deal of attention to comply with the requirements.
4 – What do I have to do to comply with the State?
This question also depends on what type of business it is and what industry you are in. If you have a sole proprietorship that is service-based and run 100% by yourself, then you may not have much compliance to do at all. However, even a sole proprietor may have to register for sales taxes or comply with other regulations. An LLC or a corporation may also have to deal with annual meetings, shareholder requirements, annual filings, etc.
5 – Do I need an attorney to help with these things?
Although in many legal transactions or litigation cases, having an attorney is not absolutely necessary, it is HIGHLY recommended that planning a business includes consulting with an attorney. An attorney can help strategize the most efficient format for your business, and help you to discern the best practices to avoid litigation or other legal problems. Some attorneys (like myself) also offer a monthly retainer service, which may cover all the issues above, in addition to providing a trusted voice to bounce ideas off of regarding legal strategy. As the above is not an exhaustive list, nor do the answers provided above represent a complete picture of all that should be thought about when planning to start a business, it is best to sit down with an attorney to talk about all these things before they become massive problems that cannot be cured without dismantling the dream and starting over.
DISCLAIMER: Please do not prepare your own documents / filings after reading this blog, without consulting an attorney first about your specific situation. I make no representations or guarantees here as to the applicability of any claim in your specific situation. This blog is ADVERTISING MATERIAL only, and should not be relied upon as legal advice, especially if you are not an Illinois resident. Please contact me if you have a legal question or concern, as no attorney-client agreement will exist between myself and any readers of this blog unless it is signed in writing.
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