Choosing the Appropriate Business Entity
It is essential that you and any business partners thoroughly evaluate your current and future goals when deciding what type of entity your business will take. Who will have decision-making power? Will you need investors? What type of management structure makes the most sense?
You should always consider the following three factors when determining your business entity type:
- Limited liability. Depending on the entity you choose and how it is structured, you can insulate yourself from the company’s financial liabilities.
- Tax efficiency. Entity types vary in how and to what extent they are taxed.
- Management structure. Some entities require a great deal of day-to-day oversight to maintain, including responsibilities to shareholders. Other types are far more flexible.
Each entity type has unique advantages and disadvantages. We can walk you through the implications of each option and advise on which may be most conducive to your and your partners’ goals.
Limited Liability Companies
Limited liability companies, or LLCs, are a popular choice for startups. They offer the structural flexibility of a partnership paired with the more robust protections of a corporation.
Participants of the LLC can shape the management structure of the entity, deciding whether they prefer to be “member-managed” or “manager-managed.” Member-managed LLCs are ideal for situations where multiple business partners plan to actively contribute to and run the company. If some partners, including investors, prefer to take a more passive role, a manager-managed LLC appoints a manager to handle the bulk of the company’s day-to-day affairs.
LLCs have a great deal of flexibility in determining how they prefer to be taxed. Both managers and members are not individually liable for any of the LLC’s obligations. We can help walk you through how to form and set up your LLC, including registering the company with the state.
Forming a corporation is often a complex endeavor that requires capable legal assistance. They are among the most sophisticated types of business entities and come in several subtypes. Unlike other entities, you cannot simply register a corporation with the state. In addition to filing what are called “articles of incorporation,” you must also hold an initial organizational meeting to establish bylaws that will govern the company.
In most corporation types, there are three levels of participation. Corporate officers will run and manage the business’s affairs. A board of directors will supervise those corporate officers. Shareholders take a limited day-to-day role but passively invest in the company.
Owning shares in a company typically entitles a person to certain rights, including voting on major decisions and a right to financial transparency, pursuant to the bylaws established during the business’s formation. Shareholders are in most situations shielded from any company liabilities.
Because you owe a legal responsibility to shareholders, forming a corporation is not something to be taken lightly. Our Charlotte business formation attorneys can help you understand the short- and long-term implications of creating a corporation, including what subtypes may best serve your interests and what form your corporate resolution should take.
Other Types of Business Entities
Our firm focuses on business formations involving limited liability companies (LLCs) and corporations. However, there are several other types of entities we can help advise you on.
Other business entity types to consider include:
- Limited liability partnerships (LLPs). This is a relatively simple arrangement in which two or more persons work together in service of a for-profit business without a significant level of organizational structure. Unlike a general partnership, LLPs are registered with the state and purchase liability insurance to insulate its partners from legal action levied at the entity.
- Limited Partnerships. This structure assigns a “general partner” to oversee and manage day-to-day affairs of a business, while “limited partners” assume more passive roles with occasional contributions and guidance. The general partner assumes full liability for the actions of the business, while limited partners are insulated and are typically only responsible for their specific actions.
We Can Help You Build Your Business
Business formation is only the beginning. Your company will likely require other legal services as it begins to hire employees, conduct transactions, and grow in ways you never expected. Our Charlotte business formation lawyers at Oakhurst Legal Group are committed to the long-term success of your company, which is why we offer general legal counsel services to small businesses. As your company expands, you will likely need intellectual property protected and contracts drafted, reviewed, and negotiated. You may also encounter unanticipated legal challenges that will require a fierce advocate. Our team is prepared to help your new business with any and all of its legal needs.