Formation and entity structure entails the process of creating a business and putting in place the agreements necessary to have the business run properly. Setting up a business correctly in the beginning can greatly reduce litigation and liabilities later, as well as help to manage the expectations of the parties involved.
COMMON FORMATION AND ENTITY STRUCTURE ISSUES
HANDLING FORMATION AND ENTITY STRUCTURE ISSUES
The first issue that arises with creating a new business is choosing an entity type. When choosing an entity type the founders should consider the governance requirements for the entity they are forming, limitations on the personal liability of the owners the entity type provides, the ability to raise capital and the tax implications of the entity type chosen. For many small businesses, a limited liability company may be the best option due to the reduced formalities in governance, pass-through taxation, and its personal liability shield. For companies that intend to raise capital by selling securities on a national exchange, a corporation may be more appropriate.
Once a business has been created, companies need governing contracts such as by-laws and operating agreements that clearly specify both rights and responsibilities. Well-drafted contracts define the legal rights of the necessary parties and greatly help a company function properly without creating legal headaches.
In forming and structuring an entity, our attorneys first review each client’s situation to help the client choose the proper business entity type to achieve the client’s objectives. Next they review the client’s situation to make sure the procedures and contracts in place for the business entity match up with the client’s actual day-to-day practices.
The attorneys at Whiting & Jardine are dedicated to helping clients set up their businesses to maintain the necessary flexibility for governance and raising capital while also putting in place the protections and procedures that will help clients avoid costly disputes in the future.