There is nothing more American than starting a business from scratch and watching it grow. There comes a point for many business owners where their business grows so quickly that they have questions come up such as: How do I expand? Do I need employees? What is my liability? How do I handle my taxes? A good business lawyer can help you make the important decision of what legal structure your new business should take.
Your decision of legal entity will have longstanding consequences to how your business will operate, your tax structure, your liability, and how you grow your business. The State of Indiana has multiple business entities to choose from that are laid out under Indiana Code. When selecting the business entity these are things you should consider:
- Sole Proprietorship: This business entity is by far the most simplistic and generally how most businesses start. In a sole proprietorship, you have complete control of your business but you also have complete liability for your actions and contracts in your business. This is important because if you are sued for something you do in your business, a court could find that a complaining party can go after your business assets, as well as your personal ones. You also have a very simple tax structure as you do not have an entity status.
- Partnership: A partnership is a simple business structure that allows two or more people to jointly own a business. Owners will share liabilities but will also be jointly liable as a matter of law. However, there can be a distinction between what are partnership assets and what are personal. In a general partnership, partners are taxed on a pass-through basis.
- Corporation: A corporation is one of the more formal corporate entities. In Indiana, corporations are governed by the Indiana Business Corporation Law. A corporation is a legal entity that is separate from its owners. Due to the corporation being its own entity, this can create more complicated issues and formalities that are required to operate. However, with these formalities can come advantages. For instance, a corporation may be able to have certain business expenses written off for tax purposes and a corporate structure adds protection to your personal assets in the event you are sued for something related to your business. The corporate structure can protect you from being personally liable for the corporation’s debts.
- Limited Liability Company: Perhaps one of the more popular corporate structures utilized in small businesses. In Indiana, small businesses are governed by the Indiana Flexible Business Act. As the name of the Act leads you to assume, the Limited Liability Company provides the business owner with the protections of a corporation but without the formalities. As such, limited liability companies are a great option for small businesses. An LLC allows your business to be a separate legal entity which protects you from personal liability in most situations. It also allows profits and losses to pass through your personal income without the businesses being taxed. Limited Liabilities also allow the owners to draft an operating agreement that will govern how the business is going to be administered and how the decision making process will be handled.
If you are getting ready to make the next step in your business, you should consult a business attorney who can advise you on the advantages and disadvantages of each entity so that you can maximize your business!
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