Filings With The State
Nearly all small businesses should form entities to limit their exposure to civil liability in the form of lawsuits. In forming an entity, certain documents have to be filed with the state in question.
States
To the surprise of some, state law instead of federal law governs business entities. When form an entity, you should look to the Secretary of State for your jurisdiction to find out the filing requirements. Some states provide clear and concise information. Other states seem to enjoy making the process difficult and complex. Regardless, all of them have a web site for the Secretary of State.
Corporations
In most states, forming a corporation requires the filing of articles of incorporation. Articles of incorporation requirements differ by state, but typically require a statement of the name of the corporation, the number of authorized shares, the name and address of a registered agent and the name of the incorporator. The incorporator is typically the person signing the articles of incorporation. Once created, the articles are filed with the Secretary of State, which eventually will approve and return them to you. In most states, there is no need to file bylaws, organization minutes or shareholder information.
Limited Liability Companies
Limited liability companies are simple structures and are the creation of creative politicians in Wyoming. In 1977, Wyoming passed the first state laws authorizing the creation of these business entities. Mirrored after corporations, the filing process is similar to corporations, but with little tweaks here and there.
Whereas corporations have articles of incorporation, limited liability companies have Articles of Organization. These Articles of Organization require pretty much the same information as articles of incorporation. The primary difference, however, is most states require you to use a pre-printed form for the articles. Make sure you check with your state to determine if this is a requirement.
Do It Yourself?
If you are a sole proprietor seeking a business entity, you can handle it if you understand the concepts. If you don’t understand the process, get a professional involved.
If there are two or more people in the business, an attorney should be used for liability purposes. These liability purposes arise when one “owner” takes charge of the filing. When disputes later arise, the take charge owner is inevitably accused of organizing the filing in such a way at to create an advantage.
Yes, it happens all the time.
Categories: Business, Guide, Money Tags: Business Entities, Filings With The State, state filings, web
Business Entities
Business entities comes in so many types that business owners can easily get confused. Here’s a quick guide that will hopefully shed a little light on business entities for you.
Business Entities
“C” Corporation: A corporation whose shares are held by shareholders. The entity stands apart from the shareholders for legal and tax purposes. The shares of the corporation may be “taken public” and traded on stock markets. Google is an example of a publicly traded “C” corporation.
Foreign Corporation: A corporation doing business in a jurisdiction beyond where it was formed. Microsoft is a Washington corporation. When it does business in New York, it is considered a “foreign corporation.”
General Partnership: A business effort involving two or more people, known as partners. Each partner is liable for all partnership debts and obligations regardless participation and contribution amounts. Put another way, a general partnership provides no protection against lawsuits.
Holding Company: Part of a double incorporation strategy. The sole purpose of a holding company is to own or control other companies. Said other companies typically are exposed to significant liability threats. For instance, many insurance companies use holding companies to suck off profits and limit lawsuit risks.
Joint Venture: A cooperative business effort between two or more parties. It is usually limited to a single business purpose and involves a sharing of responsibilities and revenues. For instance, a database programmer and web site designer might enter a joint venture to provide e-commerce solutions to businesses.
“LLC” – Limited Liability Company: A creation of state law in which one or more individuals form an entity providing the liability protection of a corporation, but the tax benefits of a partnership.
Limited Partnership: A partnership in which the business is managed by a general partner with limited partners supplying capital investment. The limited partners are prohibited from actively participating in the management of the partnership. In exchange, the limited partners liability is limited to the amount of their investment. In pursuing this business entity, the general partner is almost always a corporation.
Partnership by Estoppel: A partnership created by operation of law when two or more people pursue a business goal and hold themselves out to the public as such. This business entity is prevalent as it is the automatic designation for two people doing business who fail to take any steps to designate a business entity. In this entity, each partner is completely exposed to liability risks.
“S” Corporation: Similar to a “C” corporation, this entity provides solid asset protection for shareholders from business liabilities and debts. The primary difference is the entity can be taxed as a pass through entity and is limited to 75 shareholders.
Sole Proprietorship: A business owned and controlled by one person. The designation provides no protection from business liabilities. It is taxed on the person’s personal tax returns on schedule “C”.
Each of the above entities provides certain advantages to a business owner. If you consider the particulars of your efforts, you should be able to get an idea of which one is best for you.
Categories: Business, Guide, Money Tags: Business Entities, business entity, Guide, web
