Passion coupled with a great idea is the foundation of a successful business. Armed with the desire to succeed and a winning idea, a company’s founders must protect their venture from the beginning. First and foremost, this means making sure that the company is legally set up in a way to foster success.
State law governs business formation and it provides several structures that offer different benefits to different types of businesses. For example, a corporation is a legal entity separate from its owners, providing the owners a layer of protection from personal liability for the corporation’s losses, whereas a partnership offers considerable flexibility in how the owners manage the business. Whatever structure a company chooses, it should always comply with the laws that govern business formation.
If a single business owner goes into business without forming a separate business entity, the business is considered a sole proprietorship, and the owner is personally responsible for all of the company’s liabilities. Likewise, if a group of owners goes into business without forming a separate entity, they have formed a general partnership, and each partner is personally responsible for the partnership’s liabilities.
This can be a frightening prospect for an entrepreneur, but it does not have to be. Although every business should think carefully about which type of entity best suits its needs, more and more are choosing the Limited Liability Company (LLC). This structure provides both the protection from personal liability characteristic of a corporation and the flexibility of taxation and management akin to a partnership.
Getting the protection of an LLC is easy to do and should be at the top of every new business’s priorities. For example, in Oregon, a company can file its Articles of Organization online with the Secretary of State, pay a $100 fee, and be registered in a matter of hours.
With so much riding on the decision to go into business, every entrepreneur should set the business up to succeed from the beginning. The first step should always be forming a business entity that provides a layer of protection between the business and its owners. Especially for small businesses, this often means forming an LLC. With the protection of an LLC or other business entity in place, a business’s owners can take the risks that make a business great without risking their personal assets.