Dispelling Business Formation Myths
Starting a business is no small accomplishment. However, simply working hard and having a good idea for a company isn’t enough to ensure it actually succeeds. A solid business plan requires you to pay critical attention to financial and legal considerations. Specifically, it’s important to know that the business formation you choose can have a lasting impact on its success.
If you’d like to sit down with an experienced business law attorney and learn the truth about different formations such as an LLC, sole proprietorship, partnership, or corporation, reach out to us at Law Offices of Peter V Lathouris LLC. From our office in Stamford, Connecticut, we’re able to represent clients throughout Fairfield County and New Haven County, including Darien, Greenwich, Norwalk, Danbury, and Westport. Set up a consultation today.
Seven Business Formation Myths
Choosing a business entity is only important for large businesses
Wrong. Even if you’re starting small and the only employee you have is yourself, it’s still important to choose the right business entity. The form your business takes will inform many aspects of your day-to-day operations as well as how you address your taxes and finances. No matter what size your business, you’ll need to consider what kind of liability protection you need, how you’d like to raise operating funds, and how you’ll separate your personal and business assets. Furthermore, you should always establish your business with an eye toward growth, thinking not just what will serve your needs now, but how it can benefit you years down the line.
You have to be a U.S. citizen to own/operate an LLC
Each state will have its own rules and guidelines about starting an LLC, and Connecticut is no different. That said, there is no law that bars non-citizens from starting and running a business through an LLC in the U.S. It is worth noting that there will be restrictions on a non-citizen’s ability to form an S Corp.
Incorporation provides absolute liability
Unfortunately, there’s nothing in the business world (or in life in general) that can provide complete liability protection. However, there are business entities that can provide the most protection and a corporation does just this. For example, a C Corp structure means the owners typically won’t be personally liable for the business profits and losses while also allowing them to raise capital more easily. However, C Corps will also be subject to corporate taxation and the owners will not be able to write off business losses on their personal returns.
You won’t have to pay taxes if you form an LLC in another state
No matter what state you live in, you’re typically able to form an LLC in any state of your choice. Many business owners pursue this option to take advantage of local laws that may reduce their taxes or overall expenses—but this approach will never completely absolve you of the need to pay taxes.
LLCs cannot be publicly traded
This is a tricky one. Technically, an LLC cannot be publicly traded since they’re privately held by the owners. Typically, corporations are the only entity that can be traded this way. However, an LLC can be converted into an S Corp fairly easily which would then allow for a public trading option. If you currently have an LLC and are interested in trading publicly, the best thing you can do is sit down with a business law attorney to discuss the best strategy for meeting your goals.
A sole proprietor can’t have employees
A sole proprietor can absolutely have employees—and many do. Though the entity of “sole proprietor” is one of the simplest and easiest to establish, its main purpose is to inform how it’s viewed in the eyes of the IRS for tax purposes. Specifically, a sole proprietorship means that there’s no distinction between the individual and their business and all profits, debts, and losses will be the responsibility of the owner. This structure does not provide much liability protection, but it does allow you to hire employees.
You don’t need an attorney to help with business formation
It’s always in your best interests to work closely with an experienced attorney not only to ensure your formation goes smoothly, but to make sure you are protected throughout the course of your business. A skilled lawyer can serve as an impartial partner in all you do, helping with tasks like drafting and reviewing business contracts, addressing disputes, fielding concerns over taxes, and ensuring you remain in compliance with all local and federal laws.
Understand Your Rights
You’ve already put so much work into coming up with a creative idea, saving money, and writing out a business plan that will get your idea off the ground and into the real world. The next step is making sure the entity you choose truly meets your needs and that you understand how the formation of your business can benefit you for years to come. For individuals and businesses in the Stamford, Connecticut region, reach out to our team at Law Offices of Peter V Lathouris LLC to schedule a consultation