Having an idea that you believe is marketable is just the first step to creating your own business. Once you’ve decided to form a business, you have to determine which structure makes the most sense for the product or service you are offering. Because this decision will have an impact on your company’s success, Arenson Law Group, PC believes every business owner in Cedar Rapids should consider their options carefully.
Every business structure, from corporations to partnerships, has its advantages and drawbacks in the way they operate. Understanding the various aspects of each business structure, including taxation, management, and ownership, can be difficult. However, with the help of an experienced business attorney, you can make sure you choose the right business structure for your vision.
Our business attorneys regularly advise clients in different industries regarding the life cycle of their businesses, including the initial choice of deciding which entity is the best fit for them. We regularly assist clients in forming businesses throughout Iowa. Whether you are an individual entrepreneur or a multinational corporation, we can help create a business structure that will put you on the path to achieving your goals.
Types of Business Formation
The five main types of businesses structures you can choose from are:
- Limited Liability Company – Limited liability companies, or LLCs, have become increasingly popular with businesses across a wide range of industries. They offer many protections that come with a traditional corporation while maintaining what could be considered a more traditional partnership. Additionally, LLCs are not subject to the same reporting requirements that corporations are. An LLC separates your business from your personal liability. It may seem like there are many advantages to forming an LLC, but there are drawbacks as well. Upon the death of a member, an LLC must dissolve, unlike a corporation. This means that future financial planning is essential throughout the process of LLC formation. Having a skilled attorney by your side during this process would prove invaluable in finding the best choice for your business.
- Sole Proprietorship – A sole proprietorship is a type of business that is owned, operated, and managed by a single individual who is not legally separated from the business. This means that while an individual may receive all the profits from their endeavor, they will have to share the financial responsibilities, including debt. Often, a sole proprietorship is considered one of the simplest forms of business formation, and owners enjoy full control over their business endeavors. However, one of the most significant risks associated with a sole proprietorship is the fact that they are fully liable for all the debts incurred by their businesses. This means that one may have to liquidate their personal assets in the instance that they can no longer rely on business assets alone. Our attorneys are available to help you navigate this careful impasse and determine the best balance for you and your business.
- Partnership – A partnership involves two or more individuals that seek to create a for-profit business. Like a sole proprietorship, those individuals who establish the business are liable for the debts and other legal responsibilities associated with the business. Each partner is also jointly liable for the actions of the other partners. In the instance that an individual does not wish to create a more formal business arrangement, they should, at the very least, establish a partnership agreement. An agreement such as this helps establish and set clear boundaries, responsibilities, and contributions to the business. This is extremely useful in helping address later misunderstandings or disputes that may arise. It is essential to have an experienced attorney and mediator by your side throughout this process to help draft an agreement that is fair and reputable to all parties involved.
- Corporation – A corporation is a legal entity that serves as a fictitious person and garnishes many of the same legal rights as an actual person. Corporations may be comprised of a single individual or a group of people. They serve to provide limited liability for those involved with the business and tens to be one of the largest benefits for smaller business to incorporate. In the United States, there are three major types of corporations that can be formed. With the help of one of our skilled business formation attorneys, you can find the one that best fits your personal and business goals.
- S Corporation – An s corporation is generally beneficial for small companies with a small number of owners who do not need a complex business structure. This type of business implements what is known as “pass-through” taxation. This means that there is no federal tax on the profits made by the company. Instead, the tax is generally collected once business owners pay themselves out from the company. The s corporation’s income or losses
are divided among the shareholders. However, even though the shareholder is taxed like a partner, their legal liability is limited. S corporations can also only have one class of stock and s corporations must also operate under a set of specific rules and regulations. For instance, one is not able to bring an s corporation forward in a public offering to raise funds. Weighing the pros and cons of an s corporation can be overwhelming, and each form of a business has its advantages depending on the goals of one’s business and the way it operates. Discussing your
options with an experienced attorney allows you to make informed decisions.
No matter what type of business structure you’re considering, it’s critical that you not only know what options are available to you, but also that you understand the varying components of each one. Our attorneys are here to advise you through every step of your business formation process, from aiding in the initial conceptualization and determining the best type of business for you and your goals to filing the necessary forms.
We are with you every step of the way to help streamline the process, making it as easy as possible. We know that you’ve worked hard with your business, and we want to reciprocate that dedication by making ourselves available to you so that you can focus on what really matters. This will help you make the best possible decision when it comes to your commercial endeavors.
How Arenson Law Group, PC Helps You Form Your Business
No matter what industry your business is in or what size it is, every decision you make from the beginning has an effect, and you want to have confidence that the path you are headed down will allow your new business to flourish and expand. You will be challenged with legal concerns and choices that may be difficult to manage without guidance. Our knowledgeable team of attorneys can set you up for success by assisting with policy development and handling the tasks required to form a business. Arenson Law Group, PC will provide support with the following:
Selecting the Right Type of Entity
When starting a business, you must make the crucial decision of which type of business structure and ownership is the best fit for your venture and will minimize the taxes, liability, and record-keeping paperwork. We consider the Iowa rules and regulations your business is subject to and work with you to choose an entity type that suits your vision, goals, needs, and resources. Whether you select a corporation, sole proprietorship, partnership, or an LLC, we will advise you on the tax consequences of each to make sure your business benefits as much as possible.
Requesting Licenses and Permits
To operate legally, your business will require local and state licenses and permits. Certain industries, such as agriculture and transportation, must also apply through federal agencies. This process can be tedious and complex, but our team will make sure each step is followed to get your business properly registered.
Establishing Contracts
Certain contracts must be set up to manage risk, limit liability, and avoid unintended legal consequences. The type of service your business provides will determine which contracts you need. Lawsuits are often originated over a controversy about the wording of a contract, so every business must have the agreements in place that will protect them. We draw up many contracts for our business formation clients, including:
- Service contracts
- Partnership and LLC operating agreements
- Bylaws
- Buy-sell agreements
- Shareholder agreements
- Confidentiality and non-compete agreements
- Release of liability
- Employee handbooks and employment agreements
Filing Taxes
Everyone knows they have to pay taxes, but few people fully comprehend their own personal tax duties, let alone what a business is required to pay. It can be challenging to understand, and the type of business structure you choose defines which taxes your business is obligated to pay. Your Arenson Law Group, PC legal counsel will identify the local, state, and federal taxes that are relevant to your organization. These may include:
- Employment tax
- Income tax
- Sales and use tax
- Property tax
- Self-employment tax
- Excise tax
- Estimated tax
Frequently Asked Questions About Business Formation
We speak with many people who are starting their own Cedar Rapids businesses, and we are often asked the questions listed below. Don’t hesitate to contact Arenson Law Group, PC to discuss your situation and learn how we can address the other questions you have.
Where do I begin with starting my own business?
A detailed business plan is the best foundation for any business to start with. When you set priorities, establish goals, and have a structure for your business, you can avoid some big mistakes, and you will have something to show potential investors. Once your business plan is in place, you should develop relationships with those who can give you professional advice, such as a business attorney, a commercial banker, and an accountant.
What personal risk do I take on when I start my business?
There is always risk involved when opening a new business, and owners can be held personally responsible for its liabilities and financial debts. These can include:
- Guaranteeing loans and financial obligations for expenses
- Paying business taxes, including interest and penalties for unpaid taxes
- Being targeted for lawsuits or criminal charges against the business
When you work with a Arenson Law Group, PC business attorney, they will help you select the appropriate type of entity for your business to help avoid personal liability, as well as continue to provide sound legal advice once your operations are up and running.
How do I protect my great idea for a business?
Plenty of people have ideas, but it’s the implementation of the notion that makes it successful. If your product or method is truly unique, you may consider getting a trademark, patent, or copyright. These are three ways to obtain intellectual property rights, but they each serve a different purpose.
A trademark or servicemark allows a company to establish certain words, phrases, and logos as their own and distinguish them from similar goods or services offered by other companies. The term trademark is used to identify a product, while a servicemark is for services.
A patent is an exclusive right issued by the Patent and Trademark Office to an inventor for an invention. It allows the holder to be the only one to use, manufacture, or sell the invention for a set period of time. Typically, this is 20 years from the date the patent application was filed.
A copyright protects original forms of expression. It gives the holder the exclusive legal right to publish, copy, distribute, or sell a creative work for a certain time period. Examples of what can be copyrighted are art, computer software, graphic designs, poetry, film, novels, website content, or musical lyrics and composition.
Why do so many new businesses fail?
It is wise for anyone starting a business to understand the reasons why businesses often don’t succeed and how to manage or avoid these obstacles. Beware of these common reasons for failure:
- Lack of preparation and not having a thorough business plan
- Lack of knowledge about the business or industry
- Too many partners sharing in the ownership
- Not understanding the target market for the product or service
- Underestimating how much it will cost to do business and not securing enough capital
- Failure to understand or take the competition seriously
- Mismanagement of time
- Failure to seek professional services and advice
Working with a skilled business formation lawyer who has experience advising startups can help determine whether your new business wins or loses.
Contact a Business Formation Attorney in Cedar Rapids Today
Choosing the structure of your business is one of the most important parts of business formation. As such, it is essential to have a knowledgeable business attorney from Arenson Law Group, PC, guiding you. With our support, you can make the decisions that will be best for your company, while also more easily navigating any legalities that need to be addressed. Call us at (319) 363-8199 to find out more about our experience helping people through business formation and how we can work with you.
