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Business Law and Litigation
Setting up a limited liability entity typically involves filing the appropriate documents with the Secretary of State, paying the required fees, and completing the organization by holding a meeting and adopting documents providing for the management of the company. You should consult an attorney to assist you in setting up your corporation or other limited liability entity. An experienced attorney can help you decide which type business entity is right for you, set it up to meet your needs, help you administer the company, and be sure everything is done correctly.
The most common mistakes people make in setting up their business entity include choosing the wrong entity for their particular needs, failing to complete the organization, failing to properly provide for management, conflict and dissolution issues, and failing to properly administer the company. Failure to complete the organization or to properly administer the company can result in the loss of limited liability.
The type of entity that is right for you will depend upon several factors. First, you should consider your individual tax situation. Some entities, such as a “C” corporation and a limited liability company, may allow income to “flow through” the company and be taxed to you individually. Others require the entity itself to pay the taxes. Another important consideration is management. Most entities can be set up to meet your management needs.
Anyone who owns a business and wants to protect their personal assets should set up and operate as a corporation or other limited liability entity.
Corporations, LLC’s and most other business entities can be set up to fit a variety of different management styles and goals. Corporations are typically owned by shareholders and managed by directors. Offices usually manage the day to day decisions. Frequently, one of more individuals acts in several or all of these capacities. For example, one person can be the sole shareholder, sole board member and president. Limited liability companies are owned by members and managed by managers.
Limited liability means that a business owner’s risk is limited to what he has invested in the company. Risk may arise from breach of contract, inability to repay debt, or employee negligence. A corporate stockholders risk is limited to the amount he or she paid for his or her stock. Even if the corporation has obligations it cannot meet, the creditor cannot go against the stockholder’s personal assets. Unless you operate as a business with limited liability, your personal assets are at risk.
A business entity is a way for one or more people to conduct business. A corporation is a form of business entity. Other business entities are sole proprietorships, partnerships, limited partnerships, corporations, limited liability companies, limited liability partnerships, professional associations, and professional corporations. Sole proprietorships and partnerships do not offer limited liability, meaning that the personal assets of the participants are at risk. All the other forms listed above offer some limited liability. The law treats you as a sole proprietorship or partnership unless you properly set up as another type of business entity. Most people choose to set up a corporation or a limited liability company (LLC). |