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3 Basic Factors to Consider When Forming a Business

Starting a business involves hundreds of decisions that will affect how the business will operate and how well it will meet the needs of the owners and the customers. One wrong choice could lead the company down a vastly different path than another.

Here are three basic factors to consider when forming a business:

Choice of Entity

The type of business entity you choose will affect every aspect of the company, from daily operations to taxes. You will need to evaluate all your options and decide what structure works best for your specific needs. Depending on the circumstances, options may include:

  • Corporations (S corp and C corp)
  • Limited liability companies (LLC)
  • Professional limited liability companies (PLLCs)
  • Partnerships
  • Limited partnerships
  • Sole proprietorships
  • Joint ventures
  • Non-profit organizations

Note: it’s also important to review your existing estate plan to ensure that the your company’s articles of incorporation and bylaws are in agreement with any provisions in a trust or other planning instruments.

Ownership

If there are multiple parties with ownership in your company, you will need to consider what documentation, contracts and bylaws will be necessary to clarify expectations and responsibilities, as well as minimize personal liability.

Documents to consider may include partnership agreements, stockholders’ agreements, voting agreements and operating agreements.

Life of the Business

What is your exit strategy? Is your plan to grow and acquire other businesses? Do you plan to sell?

Whether you intend to acquire, sell or both, it’s important from the start to maintain any corporate records and contracts, as well as properly document sales, purchases of stocks or assets, mergers, and reorganizations.

For more on these matters, please see Zell Law’s overview of business entity formation.

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