Your Accountant’s role in helping you select the appropriate business entity is key. Depending upon the nature of your business, the business relationships that you expect with partners, and other factors, the accounting and taxation considerations are going to be important for selecting the appropriate form of business entity.
However, we often see that some clients have engaged their Accountant to accomplish the business formation steps with the Secretary of State. Perhaps the client and Accountant were thinking that there is a fee savings. Perhaps the Accountant encouraged this additional step to be more involved in the entity setup. For many clients, it was not the best or the most cost-effective decision.
Focusing on the legal aspects of business creation and guiding you through the issues for consideration is an important role for your Attorney. When the Accountant begins the entity creation process, this implies that the Attorney’s involvement is a lesser concern or, worse, is not necessary. The client loses out.
The Attorney’s experience and training in a variety of legal areas provides an opportunity to consider much more than taxes and accounting elements relevant to you and your new business. Some examples bring home the point:
Considerations Of Potential Claims Can Guide Entity Choice.
What is likely to happen if someone tries to enforce a claim against the business? The business entity choice can provide limited liability in many instances. Still, there are some types of claims and business obligations that can be brought against owners or managers despite trying to protect themselves with the “corporate veil of limited liability.” Industry laws and regulations, some business laws involving labor and operations, and vendor and customer agreements and activities may provide unique considerations for your business model and your personal decisions.
Discussing your business entity choice and your business plan with your Attorney should take into consideration your personal assets (and obligations), and your Estate Planning that has been created or can be developed for you, and consideration for options that may become important if the business doesn’t go as planned.
For many entrepreneurs, the first time being involved with a significant claim in or out of court is an eye opener; particularly when the legal claim prompts the question: “How could this affect me personally and my family?” There are planning opportunities that are purposeful and useful. Considering those opportunities early and adapting to changes in the business in a timely manner are important.
Consideration Of Business Partner Activities And Disputes Can Guide Entity Choice.
The relationship between you and your business partners will frequently have many layers — even if your business partners are family or friends.
What are your expectations of the amount of time you will each give to the business? What expectations do you each have for investing funds for the business or for willingly participating in financing the business with loans or with a personal guaranty? What happens if your business partner can no longer provide their time, guidance and financing?
Are there consequences of having to unwind the business entity if things do not go as hoped, and how is that done? Should you be concerned if your business partner becomes disabled and can no longer participate or passes away and their interest in the business may go to their spouse or children?
The Attorney’s role? Discussing entity selection and its impact on business relationships. Creating a Shareholder’s Agreement or incorporating terms of future transfer of the business ownership interest in a Partnership Agreement or LLC Operating Agreement. Helping the business owners create and express their expectations.
Get Your Attorney Involved Early And Often.
From a tax and accounting standpoint, your Accountant will surely be adding value. Including your Attorney in the business planning early and often is equally and sometimes more valuable. Engaging your Attorney to assist with your business entity planning and business entity creation not only adds value, but also helps you make good decisions to preserve that value and to accomplish your business goals.
If you have questions about the cost of Attorney time to assist with business planning and business entity creation, you can reach out to Marc D. Sherman & Colleagues PC. If you have already set up your business entity, but you have not reviewed the considerations discussed here with an Attorney, we can also assist you and your business partners.
