Are you interested in starting a small business, but all the legal jargon has you confused? You’re not alone in this issue. While there are a lot of acronyms to learn about – LLC, INC, C Corp, S Corp – understanding how to structure your business legally is important and must not be overlooked.
Because it is not difficult to start a business or a company, there are defaults already put into place. For example, if you start a business today, you will automatically be considered a sole proprietor. If you start a business with another individual, than you are in a partnership. These are the terms you will see on your IRS tax documents when filing your tax returns at the end of the year.
Many believe this form of reporting is good enough, however because it is so basic there are a couple of drawbacks small business owners do not realize. If you are in a business as a joint partnership, you are also liable for all the decisions your partner makes. If your partner makes a bad business deal, your company is in jeopardy, as well as all of your assets and properties. This is where strategic small business planning comes in.
If you are already running a small business, or are thinking of starting one up in the near future, you have to consider how it is set up in terms of its legal structure. That way, you are protected. Your best bet with regard to making these legal decisions is to sit down with an attorney to discuss all of your options, and glean an understanding of the entire picture. Many estate planning lawyers, as well as asset protection lawyers are skilled in the area of small business planning.
During this meeting with your attorney, you are going to discuss your overall business plan to include how to structure your business. You may think you have this all determined already and set into stone, but be aware your attorney will be able to advise you in areas where you may have inadvertently made some mistakes.
During this discussion, inquire about how the creation of this business (or the existence of an already established small business) will affect your estate planning. Do you need to leave provisions in your will? Should you set up a separate trust account? Should you appoint a bank as the trustee? These are all questions that play out in your overall small business planning, whether they seem like they do or not.