Nearly everyone dreams about being self-employed at some point in their life. If you're contemplating launching a new business venture, you need to think about more than the business itself. There are many legal dangers associated with owning your own business. If the business is sued for any reason, what happens to your personal savings, bank accounts, home and so forth?
If your insurance does not cover enough of a liability, how much of it will become your personal problem? If you have a partner are you responsible for his actions? What if he wants to leave or dies? Business laws vary in different states and countries, so it's important to consult a business lawyer before undertaking a new business venture.
There are certain advantages to making your business a corporation. A corporation's credit rating is separate from the founder and it's profits are its own. Liabilities and debts are solely the responsibility of the corporation. The chief executive officer, who could be you, has management control of the corporation. The articles of incorporation name a board of directors that includes a president, vice president, treasurer and secretary who oversee general business matters.
Instead of focusing on protection, a general partnership defines the terms of a partnership. In this case, each person has management control, shared rights on use of property, and shared profits. Each partner is liable for the debts, taxes and any litigation not covered by insurance. In the ordinary course of business, general partners each have the authority to enter into contracts with third parties without direct permission from the others.
While similar to a general, in a limited partnership there must be at least one general partner and one limited partner. The partners roles and liabilities are unchanged from a general partnership. The limited partner is treated much like a shareholder in a corporation. He has limited liability, and no management authority.
His pay comes as a return on his investment that's defined in the partnership agreement. Limited liability companies limit financial liability to a specified fixed sum. Often this sum is equal to a personal investment in the company. After this threshold is reached, owners and investors are protected from further debt and litigation liability.
As would be expected, in a sole management situation, an entrepreneur has sole management discretion. However they are completely liable for debts, taxes, and any potential litigation that could happen. Personal accounts and property may be seized to satisfy debts or taxes if you are unable to settle them through the business. In spite of these considerations, a sole proprietorship can still be attractive.
After you've decided which structure best fits your business there are other issues to address. There might be zoning issues or permits necessary, you might need an accountant, and you need to find out about local, state and federal taxes. Due to these complexities, consult an employment and business attorney before making any decisions regarding your new business. Starting on the right foot will ensure your success.
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