Establishing a business can be a rewarding experience for a business owner. However, if an entrepreneur does not choose the business structure that aligns with their goals, it could negatively impact various facets of their business. As a result, the formation of a business is an important initial decision for a business owner. If you require legal assistance to establish a business, you should consult with an experienced Dundalk business formation lawyer.
The Heyman Law Firm is devoted to helping business owners across Maryland that wish to resolve business law issues that are affecting the efficiency of their business. Our firm understands the common and unusual hurdles faced by business owners and we are here to alleviate your concerns. To schedule a confidential legal consultation, contact the Heyman Law Firm at (410) 305-9287, or contact us online.
Purpose of a Business Structure
As a potential business owner, selecting a business structure will have an impact on practically every aspect of your business. That is why it is necessary to thoroughly research each type of business formation to determine whether it will complement the business you want to operate.
Every type of business structure will possess advantages or disadvantages depending upon your goals. One factor widely considered when choosing a business structure is how the company will be taxed. For example, the owner of a sole proprietorship will be personally liable for the profits and losses of their business on their personal tax return. However, other business structures may be taxed differently:
- Limited Liability Companies (LLCs) – Can be structured to have a self-employment tax, personal tax, or even a corporate tax
- Corporations – Corporations have a 21% tax rate and are subject to double taxation (taxes on profits and shareholder dividends)
- S Corporations – The owners of an S corporation can utilize pass-through taxation to claim profits and losses on their personal income tax
- Partnerships – Partnerships are subject to self-employment taxes and personal income taxes for owners; however, this may be different for limited partners
- Nonprofit Corporations – Nonprofits are tax-exempt, and all profits earned cannot be distributed to owners of the corporation
Liability is another prominent issue that should be considered when selecting a business structure. Some business structures will leave the owner of the business open to liability for the actions of the company. For example, in a sole proprietorship, the owner of the business and the business are not considered separate. This means that any judgments against the company can be enforced against the owner’s assets directly.
Other types of business structures may only protect certain members of the company. Limited partners in a partnership can invest in the company but still be exempt from liability because they are not involved in the day-to-day operations of the business. Alternatively, a general partner could be held liable for the actions of the partnership. Additionally, partnerships that are not structured as a limited partnership will have unrestricted personal liability for the owners of the business.
There are other factors to consider when choosing a business formation. For example, if the owners of a business are interested in making the company public in the future, it would be prudent to establish a corporation. A corporation would also allow the owners of the business to raise money quickly with the offering of stock.
To learn more about selecting the business structure that is appropriate for your company, you should continue reading and speak with an experienced Dundalk business formation lawyer.
Common Types of Corporate Formation in Dundalk, MD
There are multiple types of corporate business structures that business owners can choose from. As mentioned, each of these types has advantages and possible disadvantages, depending on what a business owner plans to accomplish.
Corporations (C corps) allow shareholders to use money and property to purchase stock in the company. In a corporation, shareholders and officers of the corporation cannot be held personally liable for the actions of the corporation. Corporations are often chosen by business owners that may seek to take their company public, and that may have a need to raise large amounts of capital quickly.
S corporations are corporations that can have no more than 100 shareholders. Like traditional corporations, the officers and shareholders of an S corp are not liable for the actions of the corporation. However, as mentioned, the owners of the S corp enjoy pass-through taxation on the profits and losses of the corporation. This allows the owners to avoid the 21% corporate tax rate.
B corporations are used to bestow some public benefit and also to turn a profit for the corporation. While they may not share the same purpose, B corporations and C corporations are taxed the same.
Nonprofit corporations are used to perform charity, religious, scientific, educational, or some similar form of work. As nonprofits are intended to benefit the public, they enjoy tax-exempt status upon successful filing with the IRS. Additionally, unlike other corporations, nonprofit corporations cannot give dividends to the owners of the company. There are other restrictions placed on nonprofits, like the inability to donate to political campaigns.
Contact Our Experienced Dundalk Business Formation Attorneys to Discuss Your Business Structure
If you are concerned about selecting a business structure for your company, contact an experienced Dundalk business formation attorney today. With a wealth of experience in a variety of business law issues, the legal team at the Heyman Law Firm is prepared to represent you. To discuss the formation of your business, contact the Heyman Law Firm at (410) 305-9287.