An Inside Look at Arizona Business Structures and Which One is Right for You
How to Choose the Best Legal Structure for Your Business
Deciding on the type of business structure you will need is one of the first – and possibly one of the most important – decisions you will need to make for your business. Your business structure will determine how you can collect profits, what kind of taxes you will have to pay, what kind of liability you will have, and more. It is critical that you work closely with an experienced Arizona business lawyer to determine how each business structure would align with the goals you have for your business.
Here’s a brief look at some of the common business structures in Arizona and how each would impact your business:
The sole proprietorship is the simplest business structure of all. You simply operate the business in your own name. You use your social security number as your tax ID. You personally collect and keep all revenue generated by your business, rather than having to pay yourself a salary or a dividend.
The downside to a sole proprietorship is that you take on all the liability for the business. If something goes wrong, such as a contract dispute or a problem with a product, your client or vendors can sue you personally, which could put your personal assets at risk. If you were to need money for your business, you would also have to use your own credit to get a loan (though, even if you use other business entities, you could be required to personally guarantee business loans).
Perhaps you want to go into business with a partner. You will need a formal arrangement that outlines the responsibilities and the rights of each party, including how profits will be divided, how liability will be shared, how decisions will be made, and so on.
There are a few types of partnerships available, and your business attorney will help you understand the benefits and disadvantages of each. Your attorney will also walk you through issues you need to consider, such as what type of liability each partner will have, what your exit strategy would need to be, and how the business would be handled upon the death of one partner.
Limited Liability Company
As indicated by its name, a limited liability company, or LLC, is designed to limit the liability of a company and its owners. The structure helps you to protect your personal assets in case of a lawsuit or other legal problem. The structure also has tax benefits as it can reduce the so-called “double taxation” for owners. It also provides flexibility in determining member shares.
The disadvantages of an LLC include the expenses of setting it up and maintaining it, and some people believe that LLCs have a less professional image than corporations.
Creating a corporation is not just for large companies. A corporation structure offers a number of benefits, including limiting liability, creating a clear separation from owners and managers, and allowing for an unlimited number of shareholders (for C corporations). This structure can also make it easier to keep the business going in perpetuity.
The disadvantages are that this structure can become quite complicated, and it can involve higher taxation. You can create an S-corporation to resolve the “double taxation” issue, but there are limitations on an S-corporation, and all corporations have less flexibility in allocating income for tax purposes.
A good business attorney in Scottsdale will help you understand how each of these structures will impact your business, specifically, and how they can help you meet your goals for the business and yourself (or not). Your attorney can help you navigate the options to choose the best structure for long-term rewards, both for how your business will operate when it is just starting out and how it will operate in the decades to come.
The Scottsdale business attorneys at Denton Peterson Dunn can help you choose the right structure for your business and can put together the right paperwork to start you on the right foundation. We also draft and review contracts, advise on employment issues, and more. We’ll help you protect your business, to maximize your profits, and to minimize your liability. Call Denton Peterson Dunn at one of our offices in Mesa or Scottsdale to schedule a consultation with one of our experienced business attorneys and learn more about your options. We can work with you on the start of your business and help it grow and thrive.