Chattanooga is full of entrepreneurs starting various types of businesses. It is a daunting task and these entrepreneurs face a multitude of challenges. Regardless of the type of business or how “new” or “high tech”, all “startups” still face the same fundamental needs and decisions.
What is the best business organization for the particular business ? The Business organization should match the desires and goals of the business. This choice of the appropriate business organization is one of the key decisions that must be made.
The traditional business organization choices are individual proprietorship; partnership; corporation; or limited liability company. Each one has its advantages and dis-advantages and it is virtually impossible to select a perfect type of organization.
The choice of business organization decisions dictate who will own the business; who will make the key decisions; how it will be governed; how it will distribute the profits to the owners; the kinds of taxes that will apply to the business as well as other issues.
Is perhaps the most common form of business organization. It is the typical individual owned, small business. It offers the greatest flexibility, but also the most risk because the personal assets of the proprietor are at risk.
This is where two (2) or more individuals go into business together. This Partnership may or may not be created by a “Partnership Agreement” (although it should be). It is also flexible, but each partner is “ jointly & severally” liable for the debts and liabilities of the “Partnership”. Also, each partner may bind the “Partnership” to contracts, etc. without the other partner’s permission. There are different types of Partnerships such as “General Partnership or “Limited Partnership”. They can be very simple or very complex.
Limited Liability Company
This is a hybrid form or business organization wherein the flexibility of a Partnership is joined with some of the liability protection of the corporation to create this entity. It has become increasingly popular (particularly) among family operated businesses.
This form offers the most protection to the owner (shareholder). It is also the most complicated and cumbersome. It also has adverse tax consequences for many shareholder (owners) depending their particular situation.
The business organization decision also affects in large measure the insuring program a business chooses. Whether it is protecting physical assets (such as your computers or building) or protecting from third party liability, the insuring program needs to be considered in conjunction with the type of organization. For instance, a lawsuit could destroy a business without adequate insurance. These decisions should be considered and discussed with your lawyer and insurance professional.
Joe recommends that you consult with a knowledgeable lawyer licensed to practice in Tennessee with regard to these important decisions. In addition, a consultation with a knowledgeable Certified Public Accountant and commercial insurance professional is also important to such decisions.