When a new business is started, the owners have four choices on how to operate the business:  as a sole proprietorship (if there is one owner), as a partnership (if there are two or more owners), as a corporation, or as a limited liability company (LLC).  Despite the risks to the owners in operating as a sole proprietorship or partnership, they often postpone the decision to form a corporation or LLC in order to defer expenses.  Every business, however, should seriously consider operating as a corporation or LLC.

A limited liability company is a relatively recent business entity.  It provides essentially the same advantages as a corporation.

Limited Liability.  If the business is operated as a corporation or LLC, the owners are not personally liable or the debts, liabilities, and obligations of the business.  As a general rule, they are protected by the corporate or limited liability shield.  This assumes, of course, that the corporation or LLC is properly formed, organized, and operated.

Other Advantages.  To hold assets, to keep other business operations separate, unlimited life, and various favorable tax consequences.

Formalities.  If the owners decide to operate as a corporation or LLC, they must observe certain formalities to maintain the corporate or limited liability company shield.  The entity must obtain a federal identification number and maintain its own bank account.  The owners should not commingle business and personal funds.  Corporations must elect directors and officers, adopt bylaws and authorize the issuance of stock.  The entity must do business and enter contracts in its corporate or LLC name.

Other Best Practices.

• Keep business and personal accounts separate
• Well established personnel procedures
• Payment of overtime
• Workers' compensation insurance
• Tight control of anyone who handles cash
• Proper control measures for handling deposits
• Who signs the checks?
• Access to information
• Business continuation insurance
• Retirement accounts
• Clear policies regarding accounts receivable

For additional information, access the articles Mike Wells has written for the Winston-Salem Journal on these issues.  From our home page click on "Legal Articles in the Winston-Salem Journal by Mike Wells", then scroll down to "click here to check out Mike's recent Winston-Salem Journal articles" to read and / or download the article.

Wells Jenkins represents a wide array of businesses, large and small.  The firm has experienced attorneys in the areas of business formation, operating, franchising, dissolution, shareholder rights, and business litigation.

If you have questions, please contact R. Michael Wells, Sr., at (336) 714-2566, or e-mail him at mikew@wellsjenkins.com

Remember: An informed choice is a smart choice.

 

Disclaimer: This information is provided as a public service.  Information contained is not intended as, and should not be taken as, legal advice.  The use of information provided in this summary should not be taken as establishing any contractual or other form of attorney-client relationship between Wells Jenkins Lucas & Jenkins, PLLC, and the reader or user of this information.