Setting Up a Business

Many client families have business interests. Our firm has several attorneys on staff with an extensive background in corporate matters who are well suited to assist you with your family business. It is through our comprehensive approach that we help clients evaluate, create, and maintain their family business interests.

If you need to create or want to start a business, we can assist with that, too. When it comes to running your own business, you have a choice between several different types of legal entities. There is no right or wrong choice; the right structure for your business will depend on many considerations, including tax implications, management style, the number of owners and the relationship between them, limiting personal liability, and attractiveness to investors. Squillace & Associates, P.C. can help you understand what kind of business entity is best for you and your estate plan, and can set up either a Massachusetts or Delaware entity for you. (We also have the ability to set up corporate entities in a variety of other states like Nevada, South Dakota, Alaska and Wyoming, all popular for domestic asset protection reasons. We also work with a variety of off-shore firms to help set up off-shore companies also for asset protection reasons.)

Of course, you do not have to register a legal entity in order to run your own business; you can rent space, contract with customers and vendors, and operate your business under your own name. This is called a sole proprietorship, and the owner is called the proprietor. The primary benefit of a sole proprietorship is its simplicity; no registrations or filing fees are required, and the revenues and expenses of the business are treated as your personal income and expenses for tax purposes. Furthermore, management of the business is quite simple; because there is no formal business entity, there are no formalities with which to comply. However, as proprietor, you have unlimited exposure for the liabilities of the business. For this reason, it often makes more sense to operate your business through one of the following types of legal entities:

Partnership: At its simplest level, a General Partnership operates much like a sole proprietorship with more than one proprietor, who are called partners. The partners will generally enter into a partnership agreement which dictates how the partnership decisions will be made. A General Partnership is taxed similarly to a sole proprietorship, with the revenue and expenses of the partnership allocated to each partner in proportion to his/her ownership interest. However, while a General Partnership offers the flexibility of multiple owners, it provides no liability protection to its owners; each partner has unlimited exposure for the liabilities of the business. To provide some protection, many partnerships are structured as Limited Partnerships, which have one (or more) general partners with unlimited personal liability and one (or more) limited partners, whose liability is limited to their investment in the partnership; or Limited Liability Partnerships, which must register with the state, but which provide liability protection for all partners.

Corporation: A Corporation allows for multiple owners (called shareholders); each shareholder’s exposure to the liabilities of the corporation are limited to the extent of that shareholder’s investment in the corporation. Corporations must file Articles of Incorporation and annual reports with the state. The corporation is governed according to its By-Laws; and corporate minutes should be kept. A C Corporation allows for a virtually unlimited number of shareholders and can be attractive to investors; but the corporation itself is taxed on its profits, and the shareholders are taxed on dividends paid to them. To avoid this double taxation of profits, corporations can elect to be S Corporations, which are taxed like partnerships but are limited to no more than 100 shareholders, none of which can be partnerships or corporations.

Limited Liability Company: Limited Liability Companies are relatively new structures which aim to combine the best elements of a partnership with the best elements of a corporation. It can have many owners (called members), and it is taxed like a partnership. However, it provides limited liability to the owners, like a corporation. An LLC generally has fewer corporate formalities than a corporation. An LLC also allows for an allocation of profits and losses different from ownership percentages.

There are a number of pros and cons with each type of entity. Many times, you could establish or change your business to any of the types listed above. Through examining your goals and your estate plan, we are confident that we can help you decide on the right entity.

If you are in need of business planning assistance, please contact us at (617) 716-0300 or info@squillace-law.com.