Business Management News

The latest news relating to Business Management
Business Management

Ask The Experts: Business Legal Structure

Read this article in PDF form here.

Q: My friend and I have decided to open an Internet marketing consulting company. I would like to make sure everything is in order before going into business with someone else. We also have no money to invest, and we’d like to do as much of the startup work as possible. I’ve noticed that there are many partnership agreements online. Can you please recommend one that we should use and advise us about any other steps we should take? We are thinking of incorporating when we start making money. 

There are only two options I suggest for your business legal structure.

The first option is a limited liability company in which you file taxes as a partnership. The second option is forming a corporation.

I strongly advise against anyone operating as a general partnership because of the joint individual liability for the acts of the business and your partners.

As for the choice between an LLC and a corporation—that’s not a simple question to respond to without more information about your revenue and profit projections. Put simply, nobody can suggest which entity is best without knowing what your financial situation will be.

However based on the description you gave about your business, my gut reaction is to suggest you begin by forming an LLC. That will likely be an appropriate starting point for you if you think your taxable profits will be less than $35,000 or $40,000 in the first year or two. After you pass that mark, a corporation might be more advantageous. If so, you can convert the LLC to a corporation.

To set up either the LLC or corporation, my first suggestion is for you to purchase a book on how to form your own LLC (or corporation as the case may be). I like one published by Nolo Press. This will give you all of the forms and information you need to set up the entity. Even if you use an outside service, this will give you the knowledge to properly administrate the entity.

The legal documents you will need are determined by the type of entity you choose. If you become an LLC, you will need a membership agreement (which in essence is the partnership agreement) and a buy-sell agreement (which can be incorporated in the membership agreement). If you incorporate you will need bylaws, a stockholders agreement and the buy-sell agreement.

To learn more about choosing the right business legal structure, you might want to check out these NASE resources:

Get More Answers

The NASE’s small-business experts are here to help you understand the ins and outs of operating a successful small business. And access to these professionals is free with your NASE Membership!

Just go online to the NASE’s Business Learning Center where you can ask the experts questions about:

  • Taxes
  • Marketing
  • Financial issues
  • Employee relations
  • Accounting rules
  • And much more

The experts are available 24/7 and ready to help!

Read this article in PDF form here.

Share This Page...

Related Videos...

  • NASE Benefits At A Glance

    As a NASE member you have access to MANY benefits designed to help you with your business needs. In this video John Hearrell talks about how to quickly see just what is available to you.
    Posted on Mar 28, 2018 by John K. Hearrell
  • How to Deduct the Business Use of Your Vehicle

    Will you be prepared at the end of the year to take your vehicle tax deduction? Are you keeping a mileage log in case of audit?
    Posted on Jan 10, 2018
  • NASE Business Benefit Overview

    Through your NASE membership, you will unlock countless doors that lead directly to one goal: Providing you the tools and resources needed to have a true business advantage in the marketplace.
    Posted on Jan 10, 2018
  • New Business - What Tax forms do I need?

    Now that you have started a new business, what additional tax forms do you need to have? Keith explains the differences in various tax forms.
    Posted on Jan 10, 2018
  • New Business - Different Types Explained

    What type of operating structure and entity form will you use; Sole Proprietorship, Partnership, Limited Liability Company or Corporation. Remember, the decision you make will not make a material difference in your overall tax liability.
    Posted on Jan 10, 2018
Want to see more related videos?  Click here 

Related Blog Posts...

Want to see more blog posts?  Click here 

Still Have Questions?

Ask The Expert