Starting a business is a serious endeavor that opens you up to many new legal considerations. Prepare for your initial meeting with an attorney by learning about key business entity concepts.
Single owner
You are a lonely practitioner who has been baking and giving away cakes for years. Now people offer you money to bake more. In this situation, if you are simply making cakes in your home kitchen without much fanfare, establishing a formal entity may not be necessary.
Typical sole proprietors
– Small companies
– Operate with minimal luxuries
– Comfortable assuming personal financial risk
camaraderie
You’ve spent a few years as a sole proprietor. Orders have been coming in steadily and he has hired additional workers. After borrowing his neighbor’s truck to deliver a wedding cake for his first out-of-state client, he realizes this relationship could help him grow his operation. This could be the time to establish a partnership. Here you and one or more other people agree to share ownership of the business. The proportional participation in the property is decided by the partners. Depending on their status, partners may share the risk equally or share the risk proportionally based on their agreement. Although it’s tempting to rely on a friendly handshake to seal the deal, with so many considerations, it’s important that both parties have a lawyer review their agreement.
typical associations
– Individuals who have chosen partners with whom they are likely to work well both professionally and personally.
– Colleagues who have invested time and capital in the business
– Partners who are willing to be personally open to responsibility
limited liability company
The bake sale association has been booming, and you and your neighbor agree that it’s time to set up shop. While the association worked when he was in his own kitchen, setting up a commercial kitchen requires permits, contractors, and licenses. Above all, you should take out insurance. This makes you reconsider whether you want to remain personally responsible. What would happen if someone slipped on some ice and broke into a sweat? Establishing a limited liability company will create a separation between you, the person, and the business entity you operate. In other words, if something bad happened, the company would be responsible, not you or your neighbor.
Typical Limited Liability Companies
– Operating in an industry susceptible to lawsuits
– Can be any size
– Require less personal financial investment
Corporation
Twenty years have passed and you are a Cake Don. In addition to making cakes for all occasions, she has an online baking show, a podcast, and a line of bakeware. This is all great and you are a millionaire but your hands hurt and you wonder what will happen when you want to slow down. His family steps in and asks to participate, pushing him to set up a corporation. This form of business is run by a board of directors that, depending on the type of company, may or may not own shares of the company. If you want to ensure the long-term success of the cake company, having a corporate board available to help make decisions is key.
typical corporation
– It has a bigger budget.
– Can be for-profit or non-profit
– Must comply with strict regulations if the corporation goes public
Be sure to work with a lawyer to ensure you stay in compliance while running a driving business, no matter the type.