Clarksville Business Planning Attorneys Providing Legal Advice and Services for Entrepreneurs
Among the many topics a new business owner needs to think about, laying the right legal foundation for your business should be at the top of the list. It is crucial to choose the proper structure that will protect you from personal liability and offer you the most favorable conditions when it comes to taxes. With four primary business organizations available in the state of Tennessee and several derivatives, it might seem a bit confusing and overwhelming to determine which organization type is best for you. Making the right choice will shape the future of your business. Here are the basic facts about Tennessee business planning and formation, which any entrepreneur should know.
What Types of Basic Business Organizations Are There in Tennessee?
In the state of Tennessee, there are four main types of business organizations: corporations, limited liability companies, partnerships, and sole proprietorships. Each of these comes with benefits and drawbacks. Crow Estate Planning and Probate, PLC has helped many customers with each of these organization types, from formation through to dissolution. Below, we will briefly go over each organization and derivatives to better understand the options available to you when you start a business in Tennessee.
- Corporations: Among the more elaborate business structures, a corporation is considered a legal entity with the power to sue, be sued, purchase property in its name, and enter contracts. While it is owned by its shareholders, it is also considered a separate entity that files its taxes and requires many formalities before its formation and during its existence. One of the most significant advantages of a corporation is the increased level of protection from liability that it provides its shareholders. Business owners can choose to begin a C-Corporation (that pays its own taxes) or an S-Corporation (a pass-through entity that requires shareholders to pay taxes on the business).
- LLC or Limited Liability Companies: LLCs are becoming more popular among business owners because it provides corporate-level liability protection but requires less in terms of legal procedures and formalities. LLCs must be registered with the state. An LLC also provides more favorable taxation at lower rates when compared to a corporation.
- Partnerships: If you wish to start a business with a friend, for example, you may be looking at a partnership. Both individuals, who will serve as co-owners, are jointly liable for any obligations or debts resulting from the partnership. Similar to a sole proprietorship, a partnership does not offer liability protection, but it is a simple business structure that does not require major legal formalities.
- Sole Proprietorship: This is the simplest way to start a business and the most popular across the U.S. No formal legal action is required to create a sole proprietorship (unless you wish to use a fictitious name or need local licenses and permits). This also offers the lowest levels of personal liability insulation, as you and your business are considered to be the same, and you will be using your tax return to file taxes for your sole proprietorship.
Are There Other Options for Formation in Tennessee?
In addition to these, a business can also be classified as a Limited Partnership or Limited Liability Partnership (LLP). The right choice for your business depends on many factors, such as whether you are working by yourself or you have a partner, whether you want to file business income-related taxes on your tax return, or if you want a separate tax return solely for the business, or whether you plan on having employees and what level of liability protection you desire.
While starting something like a sole proprietorship or a partnership does not require the help of a business attorney, it is fundamental for any entrepreneur to consult a Clarksville estate planning attorney to double-check if they are making the right choice or if they should be looking at a different business organization. An attorney can also assist with many other items often needed for a new business, such as contracts, business plans, succession plans, operating agreements, and the like.
Are You Ready to Get Started?
We have assisted many business owners and can offer valuable insights and legal services for anyone wanting to start a business in or near Clarksville, TN. Contact our office by calling 931-218-7800 and let us help you take the essential first steps.