Harness the Power of Incorporation – The Small Business Entrepreneur's Invisible Friend

Consider the forward thinking and planning that went into building the Gateway Arch. 630 feet wide and 630 feet high, every detail had to be precise beginning with the foundation. When its two legs were joined by the insertion of the final four foot piece at the top, everything had to line up perfectly. Anything less would have been a disaster.

Your new business is to be your memorial. So the foundation – the legal framework needs to be solid and enduring. Some people get discouraged by the alphabet soup of legal options. Do you need an LLC, LLP, C-corp, S-corp, or some other legal mumbo-jumbo? Learning all of this stuff, in which you probably have very little interest, should not get in the way of building your business. Like a well built automotive, your business framework should be versatile, rugged and dependable. You know how to drive. And you know where you want to go. You should not have to learn everything about how the engine works before you can get started. You just need to know what kind of automobile is most likely to meet your needs.

There are various ways to Incorporate your business. But they all share the primary goal of protecting you from personal liability. In theory at least (there are remarkable exceptions), you can start any business without fear of losing your house or your life's savings regardless of how bad your decisions or your luck turn out to be if you take full advantage of the laws of incorporation.

Corporations are amazing creatures. They are the scapegoats of modern business owners. In ancient times, the High Priest would lay hands on the scapegoat and symbolically transfer the sins of the people onto the animal. The goat would then be chased off into the wilderness to atone for the sins of the people. That's what corporations do. They quite literally legally serve as a "person" that takes on all of the blame – and the resulting loss for the business owner's bad decisions.

For that reason, the ability to Incorporate either as a limited liability company (LLC), C-Corp, S-Corp, limited liability partnership (LLP) or other fictitious legal entity is among the most powerful and important instruments in the small business creator's toolbox. These tools are very accessible. But choosing the right tool can be confusing. And the significance of your choice of business entity can not be overstated. This legal structure will be the framework upon which the entire business entity stands or falls. If you die, decide to sell your business, or if someone files a lawsuit against you, the structure of your business entity can make a major difference in how things play out.

For most Missouri small business men and women there are three important things to know.

  1. You really need to do it. Simply registering a fictitious name with the Secretary of State will let you open a bank account. But it will not offer you any of the protections these legal entities provide.
  2. For most businesses, your best options will probably be either a corporation or LLC.
  3. If you are starting a small business and do not expect to make a lot of money in the first year or so, an LLC may be the best choice for you. The LLC has a lot of flexibility without the rules, formalities and structural requirements of a Subchapter S corporation. On the other hand, if you expect to generate significant profits early in the life of the business the additional red tape and reporting requirements of the corporation may make more sense for your situation. This is because even though LLCs and Subchapter S corporations both offer pass-through taxation (and there is avoid double taxation on the company's profits), there may be significant tax savings by choosing the S-Corp over an LLC if you generate profits beyond what you would normally take as a personal salary in the first year or two.

If you decide to go with a corporation, LLC or other business entity, you need to realize that you will not get their protections unless you do them right. Setting up these entities without the proper follow-though can result in the same consequences as you would have faced if you had not done anything at all. The best way to cut through the jungle of options is to consult with a lawyer that knows and understands the needs of small business. Going that route is a lot less painful than trying to figure it all out by yourself and guess when or not you did it right. Because there are experienced business associates that do not charge anything for an initial consultation, there really is no reason not to be safe now rather than sorry later.

Source by Rick D Massey, JD

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