Business Formation 101: LLCs, Corporations, and More
By Attorney Robbie Crosier
Starting a business is an exciting journey filled with possibilities, but it also requires navigating complex decisions—one of the most critical being business formation. Understanding the basics of business formation is the cornerstone of successful entrepreneurship.
What Is Business Formation?
Business formation is the legal process of establishing a business entity. The chosen entity structure influences various aspects of your business, including liability, taxation, and management. Common forms include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
Exploring Different Business Entities
Sole Proprietorship: This is the simplest and default form of business entity, requiring no state filings and involving a single individual who owns and runs the business. The owner is personally liable for all business debts.
Partnership: This is a business run by two or more people. Like a sole proprietorship, it requires no formal filing with the state, and is created by default when two or more people engage in a business venture together. In a general partnership, all partners share liability and business responsibilities.
LLC: An LLC combines aspects of a partnership and corporation, and is often the best of both worlds. Owners, known as members, enjoy limited personal liability and the business profits pass through to their personal income without facing corporate tax. LLCs require a formal filing through a state’s Secretary of State to be created (as well as payment of a filing fee). We find that LLCs are the ideal entity type for most small businesses.
Corporation: Corporations offer more opportunity for customization than LLCs, at the cost of more required upkeep and slightly increased complexity. Owners are shareholders and have limited liability, and the corporation pays its own taxes. Corporations also require a formal filing through a state’s Secretary of State to be created (as well as payment of a filing fee). Corporations can be an ideal choice if a new business venture is seeking to raise venture capital or some other form of institutional investment, or otherwise requires a more complex ownership structure.
How to Form a Business Entity
The process for business formation varies depending on your chosen entity. Generally, the steps include choosing a business name, filing necessary paperwork such as a Certificate of Formation (for an LLC) or Articles of Incorporation (for a corporation), and obtaining any required licenses or permits (which vary from state-to-state).
Why Legal Counsel Matters in Business Formation
While the process may seem straightforward, establishing a solid business foundation requires careful planning and understanding of legal nuances. Mistakes in business formation can lead to legal complications, financial losses, and even business failure.
The Crosier Law Firm offers expert business formation services, supporting entrepreneurs in laying a robust legal foundation for their ventures. From selecting the ideal business structure to ensuring all legal requirements are met, we provide the guidance you need to make informed decisions.
Business formation is more than just a legal requirement—it’s a strategic move that sets the tone for your business journey. Understanding the basics of business formation is your first step to launching a successful venture.
