When forming a business there are certain questions the proprietors should ask and consider. The list below has been prepared by a Denver small business attorney at The McGuire Law Firm. While the list is not intended to be exhaustive, it should provide small businesses or small business owners with questions and issues for consideration as they form and structure their business.
1) How will the business be formed and maintained? In regards to formation, do we need to file any documents with the government, such as the IRS, FDA or secretary of state, or can we just start selling our wonderful widgets? A related question or concern may be, who do we need to help us- do you need an attorney to file certain documents or keep the business in good standing?
2) Is the business format chosen a separate legal entity from the individual(s) operating the business?
3) Who is liable for business debts to third party creditors? Within this question, we are concerned about liability incurred to operate and manage the business. For example, our widgets need super glue 2000, and we may contract with the Mr. Super Glue for our needs. If the business fails to pay Mr. Super Glue who is liable? Are the business owners or proprietors liable? Additionally, if a widget malfunctions and hurts Ms. Ratchet, who is liable?
4) Who or what entity/entities own the business? If a corporation, shareholders are the owners and the shares are the units to indicate ownership.
5) If a business owner wishes to leave the business can he or she transfer their ownership interest? What happens to the business upon an owner leaving- must the business dissolve? Is there continuity of existence?
6) Who will make certain business decisions, or is an individual hired to make these decisions? These are questions of business management.
7) How is the business taxed? Does the business actually pay tax on the profits and how will this double taxation impact the business and business owners? Does the business pass through profit and loss to the owners and how will this impact the business owners individual income tax returns?
8) What are the businesses needs for operating capital and how will money and/or property be acquired by the business? Will the owners contribute money and/or property? If an individual provides money to the business, what are they expecting in return and what are they entitled to in return? Is the individual making a loan to the business whereby they will be repaid with interest or is the individual investing in the business in terms of receiving a share of the profits and hopeful increase in the value of the business. In short, are you raising money through debt or equity? When an individual loans money to the business, they are a creditor of the business and not an owner of the business. When a person purchases stock or equity in a business, they have an ownership interest in the business.
If you have any questions regarding the formation of you business, speak with a Denver business attorney and tax attorney at The McGuire Law Firm.
The McGuire Law Firm offers a free consultation to all potential clients and would welcome the opportunity to meet with you regarding your business and tax needs.