Factors That Signal It Is Time to Form a Business Entity
Whether you own a tech startup, a clothing boutique or a small café, there comes a time when you have to figure out if you should keep running the business yourself or form a corporation or limited liability company. Many small businesses start out as a sole proprietorship and the owner does a bulk of the work getting it off the ground. When you do the work, it make sense that the profits go directly to you. However, over time you have probably noticed that – for better or worse – the taxes and liabilities are also your own responsibility. The obligations of a successful business can often become too much for a single person to manage. For more about the signs that it is time to form a business entity, call the Lake Worth business transactions attorneys at the Law Offices of Larry E. Bray.
When a business is doing well but needs to boost capital, sole proprietors look for investors. If you have a business and you want to involve others, you need stock or shares of your company. Your investors can increase the business’s bank account while receiving an ownership stake when you form a corporation or LLC. Forming an entity can also help you receive business loans. With additional funds, you can buy more equipment and inventory, hire additional staff, expand your marketing efforts and more.
One of the main reasons business people form a corporation or LLC is to protect themselves from liability. As you grow a business, you may need a loan or to form contracts with vendors, suppliers and other businesses. Sole proprietors are on the hook for paying back the loan and fulfilling all of those contracts. Their homes, cars and personal assets could be used to fulfill these obligations if the business fails. However, if a corporation or LLC takes out the loan or signs the contracts, then the business is responsible for those obligations – not the shareholders or officers.
Personal liability of an owner also becomes dangerous if you sell physical products like body products, toys, and clothing. If your products have any potential to cause harm to others, such as an allergic reaction to a soap or lotion, you could face personal suits against you. Even if the lawsuits have no merit, they waste your time and money. As a formal entity, the litigation can still be a waste of time but will be handled with business funds only.
When you run the business yourself, you receive all the profits. You also have to pay all of the taxes. You can stop paying self-employment taxes and increase your deductions by forming a corporation or an LLC. If the taxes for your business are becoming too much, speak with an experienced accountant to learn the advantages of a corporation or an LLC. One entity may offer more advantageous tax benefits than the other.
How a Florida Business Transactions Attorney Can Help
Forming a business entity is a tough decision. There are many advantages and freedoms to running your business as a sole proprietor. However, once you get a business off the ground, taking the time to consider your option and form an entity can set you up for further success in the future. To determine if it is the right time for you and what entity is best for you situation, call the Law Offices of Larry E. Bray in Boca Raton at (561) 571-8970 or contact us online.