Business structure should be the fundamental consideration for asset protection and ease of administration when starting a business. Unfortunately many people miss this point when they start their business because it is not their primary interest “at the moment.” They don’t understand or care about the essential aspects of protecting and structuring a company. They just want to get started selling their widgets, or offering their great service. However, the business structure is a critical element for a successful business and for asset protection if you get in trouble later.
I recently was talking to a woman who is involved in a multi-level marketing business. She has a number of folks that she trains to run their businesses. She asked what I did. I told her I help folks form and protect their companies by choosing the correct business structure. I detailed how it protected assets and saved taxes etc. She became animated and explained, “Oh, my girls could really use that help. Most of us just start selling the products and we never think about business structure or asset protection or taxes.”
The truth is spending a little time on the business structure can make a big difference. Most states require anyone doing business to register with the state’s Department of Commerce. The Division of Corporations and Commercial Code, or some name similar, is responsible for managing and supervising all the commercial activities in a state, both protecting the consumers and assisting businesses. Neglecting this filing puts a business owner in breach of the law.
As long as you must file with the state it is a good idea to spend some time on selecting a business structure. There are several business structure options. Each structure has different tax implications, management options, costs and registration requirements. It is important to pick the business structure that is most beneficial to you and fits your needs. Here are some common types of legally recognized business structures:
• Corporations (C or S)
• Professional Corporations
• Limited Liability Companies (LLCs)
• Professional Limited Liability Companies (PLLCs)
• Non-Profit Organizations
• General Partnerships
• Sole Proprietorships
The business structure selection is an important decision with significant consequences. Seek appropriate legal and financial advice when making your decision. It is a good idea to do this before you start your business. This is because at the time of your business registration with the state, you must file your Articles of Organization or Articles of Incorporation (which is a similar document). These documents outline the primary rules associated with your Limited Liability Company (LLC) or Corporation. Generally a Limited Liability Company or LLC is the best choice for a small business. If you are doing this yourself, the LLC Wizard can help you with the business structure choice and the set-up. It contains over 2 hours of audio instruction and written copy to help you evaluate the pros and cons of each arrangement.
Having your business in order from the beginning is important. I think about the woman with the multi-level and her girls, who just start selling product. I can imagine how much they would save in taxes if they started with an appropriate business structure in place. Or the asset protection they would have in place if they had trouble. My grandma used to say if it is worth doing at all it is worth doing well. This is true when starting a business.
By Lee Phillips