One of the most important decisions to make when starting a new business is what type of business you want to start. There are four main options: DBA, Partnership, Corporation, and LLC. At Flesner Wentzel, we have experience helping you select what is right for you. We have provided some information about each option below.
St. Charles Lawyers Who Set Up Your Business
DBA: DBA stands for “Doing Business as”. It is usually one person who starts doing business as a business name. In order to be legally entitled to “Do Business As” a name other than your own in Missouri, you must register the business name as a Fictitious Name with the Secretary of State’s Office. This process is cheap and easy. There is no upkeep from a legal standpoint, other than filing your taxes and renewing the Fictitious Name every five years. The downsides of being a DBA is that business is not legally distinct from the owner. This limits the tax options and means that the owner of the business will be liable for any liabilities of the business including work done poorly, damage caused, or breaches of contracts signed, because the contracts are signed on behalf of the individual owner.
Partnership: A partnership is multiple people who are working together for a business purpose that both have an ownership interest in the business. There is no legal paperwork for a partnership (unless they need to register a Fictitious Name) and this is what the law assumes the entity is for any joint business undertakings that don’t have legal paperwork done. Partnerships do have to file their own tax return, but all of the income, deductions and credits are passed through to the individual owners. The downsides to partnerships are that there is still no legal entity so each partner is personally liable for any business debts and that either partner has authority to incur debt in the name of the other, even without the other’s permission. This is a very dangerous situation and for this reason, Flesner Wentzel nearly always recommends a business with more than one owner be set up as an LLC or Corporation.
Corporation: A corporation is a legal entity that is separate from the individuals who own the corporation. It is created by filing Articles of Incorporation with the Secretary of State. In order to continue to be a Missouri Corporation, a report must be filed every year or every two years with the Secretary of State. Because the corporation is a separate legal entity, the individuals are not liable for debts related to contracts signed by the corporation and individual owners are usually not individually liable for damages unless they personally did work. The downsides to a Corporation is that you have to comply with a lot of formal legal rules such as having an annual meeting and keeping minutes and filing the annual report and there is an entity level tax to be paid based on all money earned by the business. This means you could be subject to taxes twice on the same money before it gets to the owners of the business.
LLC: An LLC is a combination of a partnership and a corporation. An LLC can decide if it wants to be taxed as a partnership (pass through) or a corporation (entity level tax). An LLC is created by filing Articles of Organization with the Secretary of State, but it is not required to file an annual or biannual report. The LLC will continue to exist unless terminated by the owners or the Secretary of State. The LLC is still a separate legal entity, which helps keeps the individual owners protected from liability if the LLC is treated as a separate entity. In most cases, the LLC is the best choice for a small business, but there are certainly exceptions and the attorneys at Flesner Wentzel will review your situation and advise you as to the best entity for your business.
Picking the Right Legal Entity for Your Business is Important.
Flesner Wentzel will listen to your needs and recommend the correct business entity for your business. Once we know what you need, our attorneys will draft and file the paperwork to create the entity you have chosen. Contact St. Charles small business attorneys of Flesner Wentzel at 636-442-4529. Initial consultations are free. Se habla Español.