If you are ready to start that new business, you have probably taken a look at the different types of entities you could form. Should your business be a sole proprietorship, partnership, corporation, or limited liability company?
If you are looking for liability protection, you will likely gravitate toward forming a corporation or a limited liability company.
Maybe you have heard all of the paperwork that is associated with establishing a corporation. There are corporate meetings and minutes. To provide the protection you seek, you will need to follow the corporate formalities.
Est8 Planning Counsel LLLC
Scott A. Makuakane and Roya J. Deyhim
Estate Planning Attorneys
If you don't run your corporation like a corporation, there is the likelihood that you could be personally responsible for the debts of the corporation. We call that "piercing the corporate veil." Since taking minutes may not be your favorite task, looking to set up a limited liability company (LLC) may be the right choice. An LLC provides its owners (known as the members) with liability protection and you are not required to maintain minutes.
With an LLC, you can also choose how you will be taxed. When it comes to taxes, whether you are an LLC or not doesn't matter; it is how you have decided to be taxed. An LLC can choose to be taxed as a sole proprietorship (if it has only one member), a partnership (if you have two or more members), a C corporation or S corporation. Before you decide how to be taxed, make sure you take time to sit down with your CPA.
Now that you have established your LLC, make sure that you treat it as a business. Do not commingle your personal funds with those of your business. If you need to buy new tires for your personal car, pay for the tires from your personal credit card or checking account.
If your business is ever sued, you want to make sure that your creditors cannot pierce the veil of your LLC. If it is a business debt, you want it to remain a business debt so that your personal assets will not be at risk. Keep in mind, however, that if you obtain a loan for your business, and provide a personal guarantee, both you and your business will be on the hook.
It makes sense to sit down with your team of advisors and understand what type of entity you should establish, the tax choices you can make, and the best way to run your business, given your overall objectives.
Scott A. Makuakane and Roya J. Deyhim are estate planning attorneys with the law firm of Est8Planning Counsel LLLC. Contact Est8Planning Counsel LLLC at 891-8881 or www.est8planning.com.