Do You Need a Lawyer When Opening a Small Business?

When starting a new business, you probably have a lot of questions on your mind. While you’re developing and refining your product and unique differentiators, you must consider whether your business is properly structured so as to maximize your earnings and set yourself up for long-term success.

A business generally stems from a great idea, but the hard work lies in determining how to structure your business that best suits your needs. A business entity generally involves a host of issues, from the type of legal entity you select to the owners and stakeholders that will take a share of its profits, and how profits will be divided should the company be a wild success and go public. 

You can decide whether you want to set up your business as an LLC or corporation, employ full-time workers, or rely on independent contractors. These are just some of the questions your business lawyer will review and help you address. Some of the limitations surrounding corporations, like you cannot have more than 100 shareholders, that you must be based in the United States and that you can only have one class of stock, might be too limiting for the type of business you want to build. 

LLC or S-Corporation?

Choosing whether you need an LLC or an S-corporation can be a difficult choice for a new small business owner, especially if you have little experience in navigating the consequential tax obligations that arise from whatever you choose. One reason people prefer an LLC over an S-corporation is that you have more flexibility in how your company is managed. LLCs also don’t require shareholder meetings, director’s meetings, or minutes recording what shareholders discussed, while corporations do.

Another advantage by having an LLC is that you have a lot of flexibility when it comes to splitting up your financial interests. LLC owners can divide up profits and losses however they choose amongst their owners, while an S-corporation requires the company’s profit and losses to be allocated based on the ownership percentage of each of the parties. This all affects how you would record your earnings in an end-of-year income tax statement, which may or may not align with your ultimate business and wealth goals.