Entity

A corporation is a separate legal business entity created under state laws by an owner or group of owners who become initial shareholders. Corporations are completely separate from their shareholders, “which means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts incurred by the business,” according to Business.gov. Shareholders elect a board of directors to manage the corporation, and they in turn appoint officers to handle daily business operations.

You have to admit, it’s an attractive prospect. Allowing another person to take part ownership of your business would give you more free time, fewer responsibilities, and ease a lot of the stress that has kept you away from home. But does a business partnership offer more risks than rewards?

What to Consider Before Forming a Business Partnership

The first thing you must know is that not all partnerships require legal designation; if you wish to go into business with someone, they are essentially your partner. However, without legal protection, a partnership can easily affect for your business, professional relationships, and financial stability for the worse. You should consider the following before entering into a business partnership:

• Shared authority. In most partnerships, each individual is given the power to speak for the whole company. This means you relinquish control of the business to a partner whenever you are not present (and in some cases, even when you are). If you are uncomfortable granting someone the ability to enter into contracts or business deals with clients without your consent, you may want to reconsider the partnership.
• Shared liability. If the business is not protected under an LLC, each partner can be held liable for the full amount of any company debt—and if one partner does not pay, the other may be sued for the full amount. Creditors can force a partner to sell his possessions, including his house, car, or other assets, to make up the debt.
• Dissolution. Many people make the mistake of entering into a partnership without considering what will happen when the partnership ends. If one partner simply leaves the business, the other may be left with any remaining business debts, obligations, or unfulfilled services.

How to Enter into a Fulfilling Partnership

All partnerships should begin with a written agreement between the parties outlining each partner’s rights, responsibilities, and shares of profits. The agreement should have a provision for the ending of the partnership, and allow a buyout option for each partner if the other leaves, retires, dies, or is unable to perform his duties.

If you want to fully protect your existing business, the easiest and wisest move would be to create an LLC or a limited partnership for your new owner. Ric Blackwell is an experienced Collier County business lawyer who can help you with every aspect of creating, running, and dissolving your company. Click the contact link on this page to find out how we can help.

Your business has been going so well, you can now start thinking seriously about expanding. This may mean a bigger office, a second location, or even more staff—and you’re even considering adding a business partner to help with the workload. What should your first step be in your new expansion?

If you didn’t say “protecting your assets,” you should think again. While growth of your business signals more profit, it also opens you up to more problems—and if you haven’t solidified the structure of your business, you may lose it all.

If you haven’t already done so, you should choose a legal structure for your business as soon as possible. In most cases, a business will take one of the following forms:

• Sole proprietors. Businesses that begin with one person are often considered sole proprietorships. These are unincorporated businesses that are owned and run by one individual. However, there is usually no legal distinction between the business and its owner, making the owner personally entitled to all profits, but also responsible for all debts and losses the business incurs.
• LLCs. A limited liability company (LLC) is a popular business model for small companies and sole proprietors who want to protect their personal assets from business losses. An LLC prevents creditors of the business from seeking payment from any of the owners for business debt. In addition, LLCs allow owners to pay their business taxes on their personal tax returns rather than file a separate business income tax form.
• Partnerships. Partnerships function similarly to LLCs, with the notable difference that LLC owners are not personally liable for company debts and losses. Partners are not protected from business liability unless they have been designated in their partnership agreement as “limited” partners.
• Corporations. If a company grows beyond a few initial investors, you may wish to consider forming a corporation. A corporation offers shares of your company, usually with corporate stock certificates as proof of partial ownership. If you have multiple investors in your business or intend to sell shares to the public, you will likely need the protections that incorporation provides.
• Joint ventures. Sometimes companies will enter into partnerships with other businesses for a limited amount of time. This is called a joint venture, and is created when two or more established businesses agree to work together on a specific project, combining their financial and technical resources. While no formal filing is required, any joint venture arrangement should include a declaration on how each party will contribute its assets and how profits (or losses) are to be divided when the venture ends.

Why Does it Matter What Form Your Business Takes?

No matter if there are one, two, four, or twenty people who are involved in the running of your business, none of them will be legally protected from liability unless the proper forms have been filed. If you need legal help with your Sarasota business, contact me!