When you own your own business, your business plays a tremendous role in your daily life. You never truly “clock out”. Your work life and personal life often intertwine. Even so, it is important to separate your personal liability from your business liability and doing so requires incorporating your business. When incorporating, a client must choose what type of business entity to incorporate. Common selections include, LLCs, PLLCs, Corporations, P.Cs. and Not for Profit Corporations. Choosing the type of entity to incorporate is a critical decision as it can have both tax and asset protection implications.
Once the type of entity is chosen, in order to form the entity, the appropriate documentation must be filed with the Secretary of State’s Office. It is also advisable to order a corporate book in which the stock certificates or unit certificates (in the case of an LLC) and other records of the business are stored. Finally, it is also important to draft by-laws or an operating agreement (in the case of an LLC) outlining the day to day policies and procedures of the entity.
Once the entity is formed, it must be maintained annually. This includes filing with the Secretary of State’s office, conducting an annual meeting and drawing up annual minutes. Annual maintenance is tremendously important and absolutely necessary in order to allow the business owner to enjoy the asset protection that the business entity affords in the event of a lawsuit.
Once the entity is formed and regular annual maintenance is being performed, business owners should consider succession planning, meaning what he or she envisions happening if he or she were to voluntarily or involuntarily leave the business. Formal agreements are often used to outline how both voluntary and involuntary lifetime transfers are to be made. These agreements are sometimes referred to as buy-sell agreements but may also be referred to as redemption agreements. A buy-sell or redemption agreement also commonly addresses how ownership would be transferred in the event of the business owner’s death.
Guidance in selecting a business entity
Formation of the business entity
Annual maintenance of the entity, including filing annual reports with the Secretary of State’s Office and drafting annual minutes