Booth & McCarthy is a full-service law firm. Matthew Kreitzer is a managing attorney for the firm. Organizational structure, formation, insurance coverage and taxation are common issues many small businesses do not consider when starting a new enterprise. Kreitzer provides his expert advice on common business issues.


matthew kreitzer2 Law Of The Land: 4 Legal Questions You Need To Ask Before Incorporating Your Small Business

Matthew Kreitzer
(Photo courtesy of Matthew Kreitzer)


What type of organizational structure should I use?

There is a variety of different corporation structures that fit each case. Among these corporation types are partnerships, corporations and trusts. These organizational structures can additionally be split-up based on the amount of liability that one is subject to when things go wrong. Each organizational structure has its own periodic reporting requirements, organizational formalities and costs. Partnerships are generally more relaxed than corporations. Corporations, partnerships and trusts also have varying degrees of tax liability as well. Many states provide for what are known as statutory corporations, special corporations that provide additional protections and reporting requirements. A common example is that of a professional liability corporation. Each business idea may warrant its own unique approach to the type of organizational structure to use, and a business should consult with a local attorney to determine the best strategy for them.


Where should I incorporate my business?

There are many different states that offer different benefits in terms of incorporation. Different states have different annual reporting requirements, tax requirements and legal implications for lawsuits against the corporation. There are some states that are more prone to incorporation than others. Delaware is often considered to be one of the prime places for incorporation. Whether a particular state is best for a particular business must be discussed in detail with local counsel. Only local counsel can give a complete picture of the tax, reporting and legal implications for incorporating in that state.


What type of insurance policies should I carry?

It is always a good idea to have an excess policy in addition to a business’ normal coverage. There are issues that may not be covered by initial insurance. Excess policies are insurance provisions that allow for additional coverage of incidents not contemplated by basic insurance, or which exceed normal policy limits. An excess policy is great because it gives businesses some breathing room when things go wrong.


What type of tax status should I elect?

Generally speaking, there are two major categories of taxable entities: pass through entities and double taxation entities. A corporation that is being ‘double taxed’ has its profits taxed, and then the corporation’s shareholders are personally taxed. A pass-through entity is one in which corporations are not taxed, and the liability is ‘passed on’ to the investors. Each type of taxation comes with its own rate implications. Whether to go with a pass through or double taxation model is best discussed with a CPA. The decision relies on the types of products the company sells and the method that revenue is generated.

This article was written by Robin D. Everson via for CBS Small Business Pulse.


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