Before starting, it’s important to mention that I’m not giving you legal advice.
I’m giving you a list of legal issues that you need to consider. I recommend you talk with a legal advisor in your local area before doing any of the things that we’re about to discuss.
Also, although we have customers all over the world, the majority of our customers are in the United States so this list mostly relates to people operating a business in the United States but the concepts will apply more generally to all locations.
The Best Legal Entity For You
What type of legal entity should you use?
If your budget is zero, or close to it, then you probably have no choice but to operate as a sole proprietor which essentially means that there will be no separate legal entity. You are the business.
This means that your personal taxes will be combined with your business taxes and all of the assets of the business we’ll be owned by you directly.
The alternative to doing business as yourself is to establish a corporation of some kind. In the United States, this is typically an LLC, C Corp or S corp.
In this case, the corporation will own all of the assets of the business, set up its own separate bank account, and file its own tax return. It will operate as a totally separate entity from you.
There are a lot of advantages and disadvantages to each of these options. In most cases, it is much better to set up a corporation that is a separate legal entity from you.
It will always make you seem more professional but a separate legal entity can also be very important if you:
1. Plan to have partners or investors: for example, if you want to bring in a partner or investor and give them 20% of your business, it’s pretty difficult to give them 20% of you.
However, it is much easier to give them 20% of the shares of your company.
2. Get sued. It will also be advantageous to have a company if you will be doing something that has a possibility of resulting in a lawsuit.
For example, if you provide a service that involves giving advice it’s possible that a client takes your advice and ends up with a terrible outcome that makes their situation worse than it would have been if they had never hired you.
And, this could result in your client suing you. Off course, one way to prepare for this problem is to have professional indemnity insurance, setting up your business within a corporate structure will also help.
In this case, if you structure and manage your business the right way, the legal exposure should be limited to your company and there should be no exposure to you personally.
However, there are some scenarios where everything I just said will not be correct.
The best option for you is completely dependent on your individual circumstances, therefore, it’s impossible for me to suggest anything specific.
If you are in any doubt about what to do I strongly suggest you talk with the legal advisor in your local area to discuss the best option for your specific circumstances.
My only objective here was to make you aware of the fact that there are some very different options that can have a very significant impact on you personally and on the future of your business.
The rules around a corporate structure can be very different depending on which state and country you are in.
Finally, if you’re starting a business with a partner or investor it’s critical to make sure that you structure the Articles Of Incorporation and By-Laws (or equivalent for other corporate entities or other countries) in a way that reflects how you will work together and how disputes will be resolved.
In some cases, this will require a shareholder agreement. If none of this makes any sense, talk to your lawyer.