Understanding elements of business law is essential for new business owners. The United States Small Business Administration (SBA) reports there are 30.2 million small businesses in the United States. This translates to 99.9 percent of all businesses in the country. Small businesses provided new jobs for over 1.9 million workers in 2018 alone. Roughly 400,000 businesses are started every month, of which about 10% hire employees.
The most recent data from the SBA are encouraging and will likely translate to even more entrepreneurs opening doors on their own businesses in 2019. Proactive steps can help those who find themselves in this group better prepare themselves for success. One of the most important steps: incorporation or formation of a legal entity.
What is incorporation? Incorporation refers to the legal process used to set up a business. This process is important as it separates your business from your personal assets.
What types of incorporation are available? Three of the most popular forms of bussiness formation for entrepreneurs include creating a Subchapter C corporation, a Subchapter S corporation and a limited liability company (LLC). Other options include limited partnerships, professional corporations and more.
It is important to note that the simple act of incorporation is not enough to shelter assets from liability. The business owner must also follow certain procedures to realize these protections. Examples include proper use of the entity name and appropriate signatures as well as following entity formalities and keeping business assets separate from personal assets and separate from other businesses.
Do I need an attorney? An attorney experienced in business formation and business law can discuss the benefits and risks of each business structure. Your attorney can also help draft the needed governance documents and help file appropriate forms as well as meet your other business law needs.