Starting a business, whether it is to purchase and acquire an ongoing business or to start building a business from ground up, is a big step. After all, this is when everything begins in the legal life of your business. Generally, every business has to consider the steps discussed below in order to start a company. Because every business has its own unique considerations and challenges, you should always consult with a lawyer before making a decision that would have legal consequences.
A company will have a specific legal form. It can be a sole proprietorship, a general partnership, or one of the entities that are created under state law, such as a limited partnership, limited liability company – commonly referred by its acronym, LLC – or corporation (C corporation, S corporation, non-profit, and now, the benefit corporation distinction where applicable), to name the most common entity types.
For most businesses, the first thing to consider is whether to take advantage of one of the entities created under state law. The decision to create a new entity depends on your specific situations. The common choices for most businesses are a corporation and LLC. These forms, while not the only choices, are popular because they offer the company’s owners the ability to limit their liability for the debts of the company.
Some common considerations when deciding whether to form as a corporation or an LLC might range from who and what the owners will be, how the owners desire the management of the company to be structured, how the owners wish to share the profits and losses of the company, how the owners and the business wish to be taxed, how the owners plan on compensating the employees, how comfortable the owners already are with the chosen entity type, how the business will subsequently be funded, what the industry’s common practices are, what types of assets the business is planning to acquire, and how the owners envision their eventual exit strategy.
To create a legal entity, you will also need to have a registered agent who has an office within the forum state and wherever else you might operate. Then, once an entity is created, your business, in many jurisdictions, must file an annual report with the state. State law may require the company to follow a set of specific protocols, such as having an annual shareholders meeting and keeping records. Your business is responsible for updating whatever information the state requires that you disclose initially.
The local government where the business is physically located – for example, Boston – may also require the business to register with one of its agencies.
If your company is regulated by other government agencies, you will have to continue to comply with the additional requirements imposed by such agency in selecting your entity type.