Few things can affect a business’s operations and potential for growth as much as choosing the right business formation. How a business owner structures the business “legally” can affect their liability, their costs and even their tax obligations. Choosing the right business formation means a business owner has the protection they need and a structure that allows them to grow the business for years to come. The wrong business formation, on the other hand, can be very costly. It can even lead to the closure of a business or worse, unnecessary liability for the business owners.
Given the importance of proper business formation, it is critical for entrepreneurs to consult with an experienced law firm that handles business law matters regularly. Calabrese Law Associates is a trusted Boston-based law firm that represents business owners and new entrepreneurs in all phases of their business dealings.
What Business Formations Exist?
In Massachusetts, the following basic business structures are available:
- Limited Liability Company (LLC). In Massachusetts, a limited liability company (LLC ) is created by preparing and filing a Certificate of Organization with the Secretary of the Commonwealth of Massachusetts in Boston. An LLC is a legal entity that exists separate and apart from its owner(s). Accordingly, an LLC may hold and maintain bank accounts, credit and debts in its own name without causing the business owners to incur any personal liability. The LLC may also file suit in its own name but an attorney must represent the entity at all stages of litigation per Massachusetts law. There may also be tax benefits to choosing an LLC structure over a corporation, which business owners should have their accountants explain in advance of choosing one business structure over another.
- General Partnership. A partnership is formed when two or more persons agree to carry on a business as co-owners, sharing profits and loses. No documents are filed with the Secretary of the Commonwealth of Massachusetts to form a general partnership. The terms of a general partnership, including the precise allocation of profits and loses, are usually outlined in a “partnership agreement.” Unlike an LLC, the partners in the general partnership assume responsibility for the partnership debts, legal liability, and other obligations.
- Corporation. In Massachusetts, a domestic corporation is created by filing Articles of Organization with the Secretary of the Commonwealth of Massachusetts in Boston. With a corporation, the management and control of the business is vested in the board of directors. The Corporation is a separate “legal entity” from its shareholders and property may be held in the corporate name. Furthermore, a corporation more easily accommodates different ownership interests than a partnership or LLC as “shares” can be sold, which generates revenue for the corporate operations. Many companies choose to be structured as a corporation if they plan to “go public” at some point in the future. While corporations offer many legal and operational benefits, corporations are the most complex and expensive business structure to set up and maintain.
Choosing the proper business structure is an important yet difficult decision for many experienced business owners as well as new entrepreneurs. The business formation attorneys at Calabrese Law Associates advise business clients on selecting the correct business structure, considering the nature of the business and the clients’ liability protection needs. The firm’s business attorneys understand the nuances among the various business structures and bring that knowledge to bear for every business law client. For clients that already know how they would like to structure their current business or new company, Calabrese Law Associates assures them that their business filings are properly prepared.
For all your business formation questions, contact Calabrese Law Associates for a free consultation. We’re proud to serve businesses, small and large in the Boston and throughout Massachusetts.