Matthew Worley, Esq.
With Detroit ’s
arts and creative industry booming, there are a lot of new business startups in
southeast Michigan .
While the owners of these entities may not be aware, solid legal advice from
the beginning is imperative to protect their assets and achieve their business
goals.
Initially, perhaps the most
important decision for a business is what type of entity it should operate
as. There are three basic considerations
when determining the type of entity to form:
1.
Insulation from liability;
2.
Tax treatment; and
3.
Flexibility to raise capital for the company.
Businesses are usually operated
as sole proprietorships when formed, which is a flexible type of entity but does
not provide the owner with any insulation from the liabilities of the
business. In other words, if the
business incurs a debt or adverse judgment, the owner’s own personal assets
(house, savings, boat, etc.) are in jeopardy.
In order to insulate owners from
this potential personal liability, various types of entities are
available. These include limited
partnerships, C-Corporations, S-Corporations, and Limited Liability Companies
(LLCs). The type of entity is chosen
after a careful consideration of the business type and the three basic factors
outlined above. For example, a
C-Corporation provides the most methods for raising capital, but it is subject
to “double taxation.” Other entities
enjoy the limited liability of C-Corporations, but have “flow through” tax
status.
LLCs are a hybrid of partnerships
and corporations. They enjoy flow
through status for tax purposes and the owners are not personally liable for
the debts of the company. LLCs are one
of the most common types of non-public entities.
Other important legal aspects to
consider for a new business is the preparation of non-disclosure agreements and
employment agreements specifically tailored to meet the protection needs of
each specific business enterprise. A
professional and well-drafted business plan should also be created and updated
regularly. If you are the owner of a new
business, we would love to sit down and discuss these topics with you. Contact our experienced team of legal professionals
at (248) 380-0000 or online at www.fb-firm.com.
