Are you thinking of starting a small business, and don't know the necessary steps to take?
Are you running an existing business, but have begun running into issues with your basic entity formation documents created on that simple online platform? Well-drafted business and legal documents help define how your business is structured and ultimately functions, provide legal protections, and ensure compliance with federal and state laws. Whether you are a potential or current business owner in Arizona, you should be aware of these issues related to formation structure, leadership organization, SEC compliance, and employment law.
Formation Structure: What Kind of Business will Best Set You Up to Succeed?
You will need to consider many factors to determine the best type of business for you and any business partners, as different structures may provide certain tax benefits, liability protections, responsibilities, and ultimately, money. Your decision will also determine the type of documents you need to validly create and run a business.
- Corporations: A corporation can be created by an individual or a group of people with a shared goal or desire. A corporation is a separate and distinct entity from its owners, but an entity that possesses similar rights and responsibilities as individuals - i.e., to enter contracts, loan and borrow money, sue and be sued, hire employees, own various assets, and pay taxes. It would be best if you created company bylaws, which define the purpose of the corporation, board members, officers, control of corporate decision-making, shareholder rights, how dividends will be distributed, etc.
- Limited Liability Company (LLC): A limited liability company is a hybrid entity created by the law of the state in which the LLC is created, but which combines certain characteristics of corporations with partnerships. The LLC structure protects its owners from personal responsibility for debts and liabilities while providing availability for certain tax benefits to members. You need to create an operating agreement, which defines the roles and titles of those involved, whether the LLC is manager or member-managed, percentages of equity, and distribution of profits and losses.
- Partnership: A partnership can be created, formally or informally, based upon an agreement between two or more individuals to operate a business and share in profits. Various partnership structures are available, including general partnerships (individuals generally sharing legal and financial liability equally), limited liability partnerships (usually for professionals, including accountants, attorneys, and architects), and limited partnerships (a hybrid of the two prior forms with general partner(s) and silent partner(s)).
Leadership Organization: Who is in Control of Your Business?
This answer may depend on your decision(s) above. For example, corporations can be run by and give decision-making authority to boards of directors or officers, whereas one manager or multiple members can run many LLCs.
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