Choosing the right legal entity like an LLC to form your company is vital, as it affects your day-to-day operations, tax burden, and even how you protect your personal assets!
At Avanta, we’re able to walk you through each option that applies to your situation as well as provide the appropriate documentation for filing and for fulfilling your maintenance obligations for an LLC or an S Corp. You’ll be surprised how easy we make it!
Why Form a Legal Entity?
The primary benefit of a legal entity is to protect your personal assets, like your home, vehicle, bank accounts, in case your company goes broke or faces a lawsuit.
To deserve liability protection, maintenance is key for an LLC or an S Corp. If a lawsuit happens, you will be named along with the business. If there’s no evidence of “intent” then the court will allow the other party to poke holes at your maintenance to determine if you should remain as a party in the lawsuit. This means that your actions in running the operations will be scrutinized. Among a list of things that will be called into question is whether…
- You have commingled personal and business funds
- The business has filed and paid taxes
- The state registration is active
- And, most importantly, you have documentation such as an Operating Agreement, Bylaws, Shareholder’s Agreement, meeting minutes, and consent forms
If you are ready to protect your personal assets then it becomes a question of what type of entity is right for your situation.
DBA or Sole Proprietorships are NOT a Legal Entity
“Doing Business As” is also known as a “DBA,” and it is not a separate business entity. DBAs can be used together with other legal entities, but registered on its own it does not give you any legal protections. This means that, with either of these formations, your business assets and liabilities are not separate from your personal assets. You can be held personally liable for the debts and obligations of the business and your personal assets are at risk.
Limited Liability Company (LLC)
The owners of the LLC are the “members” listed in the Articles or Certificate of Organization. The governing agreement for the LLC is called an “Operating Agreement,” which is a legally binding contract between the members and the business. Even Single Member LLCs need an Operating Agreement!
It’s a good idea to record members consent on certain decisions, but LLCs are easier to manage since LLCs do not have the same obligations as Corporations in observing formalities. We can help guide you through the maintenance of an LLC.
Corporations are owned by the shareholders who sign legally binding contracts called “Bylaws and shareholder agreements,” which define how the Corporation will be run.
Shareholders are not personally liable for a corporation’s obligations so long as they observe the proper formalities including:
- Shareholder decision-making
- Director decision-making
- Separation of corporate and personal assets
Corporations are required to give written notice of meetings, document the minutes, and hold annual meetings. We can help you with these formal maintenance obligations.
”Dana has been patient with me as I have made mistakes and she has gently guided me to resolve mistakes or learn from them. Additionally she has been intuitive about my needs and willing to adjust from her set course to better fit my needs. She has been worth every penny! And we will keep her as part of our business team for many years to come!
”I've worked with Avanta on several business projects, and they are so thorough in helping me and my partners cover our bases that I couldn't imagine working with anyone else. Anyone that is serious about setting their business venture (large or small) up for success, owes it to themselves, and the future of their organization to look into retaining Dana and her team.
”I worked with Dana Ball Legal to set up a small freelance business. The process was easy, efficient, and very affordable. It also gave me peace of mind working with a lawyer who had extensive knowledge of everything that needed to be done to start a new business. Now I can feel confident that my new business is set up properly and legally!
Your Business Formation Checklist
Before you dive into any business formation, make sure you have this information at the ready:
- What date will you open?
- When do you plan to issue your first payroll?
- Will you be selling goods or services?
- What are the full names of all individual owners? Or will other legal entities be listed as owners?
- Who will be the Registered Agent?
- What is the address of the business?
Once you have your information gathered, then here are your next steps:
- Consult with an attorney and your CPA to determine what entity to form
- Verify the availability of your company name in the applicable state
- Determine whether your company name needs a trademark, service mark, or domain name
- Apply for an Employment Identification Number (EIN)
- Prepare and sign your entity’s formation agreements
- Register the legal entity with the state
Does Your LLC or S Corp Deserve Liability Protection?
While setting up a legal entity is essential to shield business owners from liability. It is not foolproof. The courts have the power to “pierce the corporate veil” under certain circumstances and put your Company and your personal assets on the line.
It is possible to avoid a disastrous lawsuit by MAINTAINING the new entity. Maintaining your entity involves a lot of tracking, organization and paperwork including:
- Documenting business decisions with consent forms
- Annual Statements of Information to confirm all state filings
- Confirmations of payroll withholding
- Compliance with all Workers’ Compensation requirements
- Management of securities involved in the company
This is certainly not an exhaustive list, but you can see how much there is to account for when running a successful business. With the right formation, organization, and guidance, you can run your business the way you want to AND be above board with all legal requirements.
Make Sure You Have a Trusted Business Partner
Hiring a business attorney as a member of your team is just smart. Your attorney should add value to your business by protecting your business. We aim to do just that! When it comes to legal issues for small businesses, the overwhelming cost of fixing a problem outweighs the investment of doing it right from the start.