Growing businesses and start-ups may need to frequently reassess their business plans, goals, and form to determine whether these factors are aligned with the current scope of the business. A quickly growing business may significantly increase its revenue, but its legal risk and potential liabilities are also likely to increase in a similar fashion along with the organization’s scope of engagements and employment. Furthermore, business growth is also often limited by the company’s ability to secure capital and financing. While a simplistic or easy to administer company may have been the right choice early in the process, the business may soon need the ability to raise funding that a corporate structure can provide.
William S. Heyman is an experienced business attorney who has advised and litigated on behalf of companies for more than 20 years. Mr. Heyman decided to form the Heyman Law Office to pursue the ability to work one-on-one with clients and provide personalized service. Mr. Heyman is selective in the clients he takes on and strives to provide a high level of service and responsiveness for all businesses he works with.
Should You Incorporate?
The first decision a company must make is whether it is still well-served by its current form of organization. For businesses that are a sole proprietorship, this structure is unlikely to serve you particularly well in anything but the very initial stages. The main issue with sole proprietorships is that the form does not provide any protection of one’s personal assets from business liabilities. Therefore, creditors of your company can seek to go after your personal assets if the business should fail or run into significant financial problems. Likewise, most legal problems arising from the business will place your personal assets at risk.
However, the jump to a corporate structure should only be considered in light other options regarding business structures. For instance, a partnership may seem to provide the benefit of holding property in the company name, but it actually suffers from many of the drawbacks of the sole proprietorship including personal liability for the acts of a partner. In many cases, a corporate form or a limited liability company can provide protection for personal assets and property while also providing additional benefits.
What Are Common Corporate Structures for a Business?
The S Corporation and C Corporation are two common corporate forms available in Maryland. While a both provide important benefits and the ability to raise capital through the offering and sale of stock, the S Corp is typically more limited in these abilities but does provide for a greater ease of administration. That is while a C Corp does not have restrictions on ownership and there can be multiple classes of stock providing for flexibility when raising capital, an S Corporation is limited to no more than 100 shareholders and these individuals must be U.S.-based. Furthermore, only a single class of stock is available. Moreover, while C Corporations are a separate tax entity, S Corporations are pass-through entities. Businesses seeking to grow and secure funding and financing can be served by either structure however, the C Corp does provide significantly more flexibility in this regard.
There is also the opportunity to make use of a limited liability company (LLC) structure. The LLC is a pass through entity that also provides limited liability benefits. The LLC allows for flexibility in tax planning because an LLC member can also elect to be taxed as an S or C Corp. This flexibility can allow members to engage in significant tax planning to legally minimize their taxes in a manner that best suits their finances and situation. An LLC also provides more freedom for business owners to structure their own arrangements than an S or C Corporation.
It is always wise to consult with an attorney before taking any substantive legal action regarding your business’s corporate structure or organization. Consulting with an attorney can assist you in understanding the extent of potential liability and other effects a change in entity structure will have. Failure to consult with a lawyer who can provide an overview of the foreseeable effects of a change in business entity form can result in unwelcome surprises or a structure that is ill-suited to the current business goals. Furthermore, since altering a corporate structure requires certain legal filings and a registered agent, an attorney or another representative may be necessary.
Experienced Baltimore, Maryland Business Attorney for Corporation Restructuring and Formation
Mr. Heyman is an experienced Baltimore, Maryland business lawyer and litigator who can use his more than 20 years of experience as a corporate litigator to identify potential issues relating to business entity selection or restructuring. To discuss how the Heyman Law Office can assist you and your company position itself to achieve business goals, call (410) 305-9287 or contact the firm online.