Despite the suggestion of a popular bromide, it takes more than simply having a good idea to successfully establish and grow a new commercial venture. While a marketable idea is a good start, most successful entrepreneurial endeavors are only accomplished through significant research and planning. Prudent entrepreneurs not only consider their current needs but also extrapolate into the future based on their goals, their market niche, and market conditions. While not every factor is foreseeable, many potential pitfalls can be avoided or mitigated through careful business and legal planning.
At the Heyman Law Office, Mr. Heyman has more than 20 years of experience assisting commercial and corporate clients in a broad array of matters. Mr. Heyman is a Martindale-Hubbell AV Preeminent 5.0 out of 5 Peer Review Rated attorney. He can assist with the legal considerations associated with starting a business and selecting an entity type. To schedule a confidential consultation, call (410) 305-9287 or contact us online.
Why Is It Important to Consider The Form Your Business Entity Will Take?
All too often, small to mid-sized business owners fail to research and understand the impacts the selection of one type of business entity over another can have. They may fail to realize that the legal structure of their business may not provide any or adequate insulation for the sole proprietor, partner, or principal’s personal assets. In many cases, proper organization of a company can permit a business owner to engage in a commercial opportunity without placing additional personal assets at risk. Business owners should also carefully consider they type of insurance coverage they may need to cover potential liabilities.
A small business owner or a group of entrepreneurs should also consider the tax treatment that will result from their entity selection. Broadly speaking, there are two main ways that business entities are taxed: direct taxation of the entity or pass-through taxation of the owner, partners or members. Direct taxation occurs when an entity such as a C corporation or public corporation pays the corporate income tax directly. Pass-through taxation occurs when income from the sole proprietorship, partnership, LLC, or S Corporation is passed directly to the beneficiary of the organization. The individual or individuals are then taxed on the individual’s income tax return. Typically, pass-through entities require the full payment of taxes each year as the income is earned by the business. By contrast, corporate forms can delay taxation on income as long as the shareholder does not realize a capital gain or the corporation retains its earnings. It is also important to note that beneficiaries of pass-through income can be subject to the Alternative Minimum Tax (AMT) which can result in an unexpected increase in a sole proprietor’s, partner’s, or member’s tax burden.
What Factors Should an Entrepreneur Consider Prior to Selecting a Corporate or Entity Form?
Aside from considerations regarding personal liability and taxation, there are a number of other concerns the founder or founding group of a new commercial venture should also consider. One additional consideration is the ease of formation and administration of the entity. Certain forms are extremely easy to manage form and manage, but lack certain protections or features of more the more complex corporate forms. That said, while it certainly requires more work to administer a corporation, certain benefits, such as tax deferment as discussed above, may be available. Following logically from this consideration, entrepreneurs should also consider whether entity form is appropriate for the type of business and industry. Additionally, interested parties should also consider their long-term goals for the business. This may include selecting an entity form that is suitable for growth and expansion. However, in other cases an entrepreneur or group of investors may found a company with the goal of attracting a buyer. In situations like these, the ease of the transfer or sale of the entity may become the paramount concern.
Parties interested in forming a business should consider these points and how their business goals apply. At minimum, individuals should be able to articulate their goals and concerns to increase the likelihood 
of a productive conversation regarding your business formation concerns.
Experienced Baltimore Business Attorney Handles Formation for Entrepreneurs & Investors
Persons who are seeking assistance with formation concerns and the formation process should contact the Heyman Law Office to schedule a confidential consultation. Mr. Heyman has assisted large corporations and emerging start-ups in the healthcare, real estate, technology , and financial industries for more than 20 years. To schedule a confidential meeting call (410) 305-9287 or contact the firm online.