A Small Business Focus
Attorney Jonathan D. Watson has an affinity for small businesses because that's what he is. The needs and challenges faced by small business owners demand a holistic and knowledgeable approach. Mr. Watson provides a step-by-step analysis to determine which business type, if any, is appropriate for his client's business needs and goals.
Why Form a Business Entity?
Flow-Through Taxation - The business entities listed below provide for flow-through taxation. In contrast to a C-Corporation, flow-through taxation means profits and losses are taxed only once - when the owner(s) and/or investor(s) receive it.
Limited Personal Liability - In contrast to a sole proprietor, the owner(s) of a limited liability business are normally not personally liable for the obligations of the business. Only the entity is liable for such obligations. While this may implicate the capital investments of the owner(s) and/or investor(s), the personal wealth of the latter is protected. Of course, owners and partners are personally liable for their own wrongful acts.
Operating Agreement - An operating agreement notes ownership interests, profit/loss allocation, management structure, restrictions on transfer, officer election, and so on. An operating agreement is a vital tool for that assures fluid operation of the business and clear language to avoid disputes.
Types of Business Entities
LLC (Limited Liability Company) - The right choice for sole-proprietors who want to protect their personal wealth from liability arising from their business obligations. An LLC offers flow-through taxation; limited personal liability; the power to design the management structure; and, the power to restrict transfer of ownership interests.
LLP (Limited Liability Partnership) - Like an LLC, an LLP features flow-through taxation, limited personal liability, the power to design management structure, and the power to define transferability rights. Of course, to form a partnership, at least two persons must be present.
PC (Professional Corporation) - Professionals may not form a general corporation for the purpose of practicing their profession. Instead, Alabama law allows certain professionals - architects, attorneys, doctors, engineers, so on - to form a PC and thereby enjoy the advantages of a Corporation. However, several restrictions apply.
S-Corporation - Corporate structure; flow-through taxation; limited personal liability. But note the following requirements and limitations: stock limited to one hundred persons; shareholders must be individuals; only once class of stock is permitted.
Business Formation Procedure
Forming a business entity requires the involvement of the Secretary of State's Office and the Probate Court of the County in which the business will be located. Various application forms are required as well as application fees. Mr. Watson handles all of these tasks on behalf of his client.
Annual Fees and Costs
Once a business entity is formed, state law requires various annual fees and taxes, depending on the type of entity, to be paid to the State. Mr. Watson apprises his clients of these various obligations at the time of formation.
