Choosing The Right Structure For Your Business

15 Jun

There are several ways to team up with others to conduct a business whether you are a new start-up or already in business and looking to have a more formal arrangement. Before entering into a business relationship you need to decide what you want out of the relationship and how much control you are willing to give up. Also depending upon the structure chosen, tax issues will arise. So be sure to confer with your accountant before entering into any business relationship .Here are some options:

1. Corporations. A corporation is a structure whereby you as a shareholder/owner can enjoy limited liability from lawsuits arising from business activities and receive profits from the business when distributed to you. You can be an equal shareholder with others or hold a majority or a minority position. All shareholders have the right to vote on decisions effecting the corporation while the day-to-day operations are left to directors and the officers.

2. Partnerships. A partnership allows you to split ownership interests and profits as defined in a partnership agreement. It is important that you understand that being a general partner, while giving you more control in the day-to-day decisions of the business, also subjects you to more liability. Whereas a limited partner has a limited voice in the running of the business but has limited liability.

3. Joint Ventures. A joint venture is a structure to carry out a business objective over a defined period of time.It is a relationship that is usually shorter in duration than a partnership or corporation. For example, two or more persons could form a joint venture to buy a property, fix it up, and sell it. Once sold the joint venture is over. The profits are split according to the terms of the joint venture agreement. Usually all parties are equally liable for the debts and claims against the venture.

4. LLC. A limited liability company is a hybrid arrangement having both the attributes of a corporation and that of a partnership.

It is more flexible than a corporation in terms of requirements the State imposes for operating and maintaining its existence. 

It is a preferred structure for rental property ownership because as an owner you enjoy limited liability like a corporation while sharing in the profits of the enterprise. Also with multiple member LLCs,  you can choose whether to be taxed as a corporation or as a partnership.

 

Stephen J. Gross is a business, real estate, and trusts attorney in West Los Angeles . The office sets up business entities as described above for all business types. A free 1/2 hour phone consultation is offered to Pages LA readers. To contact this office you may call 310- 652 8090 and/or visit sjgassociates.com.

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