Business


 

General

 

 

 

 

 

 

 

Entity Form

 

 

 

 

 

 

 

 

I do all types of business entities, but the most common and generally the best choices, are the Corporation (both the C Corporation and the S Corporation) and the Limited Liability Company (LLC).  Both are appropriate entities, but one must consider other various factors, like the kind of business, the number of owners and potential owners, amount and type of financing and the governance structure that is planned.  In addition to establishing the business with the Colorado Secretary of State, your entity will need a variety of other documents like bylaws, operating agreements, minutes of meetings and Buy-Sell Agreements.  The most important reason to enter into a business form is liability protection.  Both the corporation and the LLC provide for an owner’s limited liability; that is, liability limited to the amount of an owner’s investment.  It avoids personal liability except for a number of situations.  Single owner entities are under continuous and heightened scrutiny.  Some professional entities do not allow for liability protection for negligence in the performance of the acts of the particular profession.  You cannot escape liability for something you sign personally, like a personal guaranty for a loan or on a business contract.  You are not afforded liability protection unless you, at all times, “act” like the limited liability entity.  It is critical that you keep your personal life separate from your entity.  Don’t put personal funds in an entity bank account or entity funds in your personal bank account.  Always disclose that you are an entity.  Your entity creates a veil between the entity and you, personally.  For example, the classic way to sign any agreement is:

 

                        Company Name

 

                        By:___________________________

                             Your Name, Your Title

 

If you do not follow strict guidelines, this entity veil can be pierced (called “Piercing the Corporate (or LLC) Veil") and a creditor who obtains a judgment can reach your personal assets.

 

 

 

 

 

 

Contracts

 

 

 

 

 

 

 

With any type of business there are a variety of types of contracts that will be necessary, such as employment contracts, independent contractor contracts, invoices, vendor contracts, licenses, channel partner agreements and the like.

 

 

Risk Management

 

 

 

 

 

 

 

Often people form an entity and begin to busily work to provide support, but do little, if anything, to assess the factors that can bring the business down.  A good Risk Management analysis is aimed at recognizing the areas of potential harm and liability in advance and putting a plan into effect to eliminate or limit harm and liability.

 

 

 

 

 

Non-Profit Entities

 

 

 

 

 

 

 

There is an art and a science to forming a Non-Profit Corporation and obtaining federal exemption.  The mere fact that one creates a non-profit corporation does not mean that the entity is tax exempt.  Except for a church, there is an extensive federal filing with the IRS to get the exemption.  And it must be done right.  This type of entity is referred to as a 501(c)(3) entity, based upon that section of the Internal Revenue Code.

 

 

 

     

 

 

Private Foundations

 

 

 

 

 

 

 

I have a section on Private foundations under Personal Planning since most of the time it is a personal outlet.  However, I mention it here since many business owners want to give back to the community based on a number of ideologies.  For a Private Foundation to be valid, filing must be made with the IRS, much like the exemption for a Non-Profit Corporation.