In a proprietorship, one person (or married couple) operates a business. All owner’s assets are committed to the business.
Advantage: A business can be started at the lowest possible cost
Disadvantage: The debts and liabilities of the business are also the debts and liabilities of the owners.
If there are two or more owners, a partnership or corporation is necessary. A partnership is an agreement of two or more people to operate a business jointly. It is important to get the partnership agreement in writing. When the honeymoon ends, it will be very difficult to enter into a partnership agreement because of disputes over exactly what was verbally agreed.
Advantage: Low start-up cost.
Disadvantage: Each partner is personally liable for all business debts and Liabilities.
A corporation is a separate legal entity, responsible for its debts and the acts of its employees. If maintained properly, owners of the business are not liable for the company’s debts. Stockholders (as well as the corporation) are responsible for their own acts, even when employed by the corporation. A corporation is a necessity when the owner has assets to protect.
Advantage: Maximum protection against liability for the acts of others. Easy to transfer all or part of the business to the owner’s family, estate or trust.
Disadvantage: Higher cost of formation and maintenance. Image of corp stock certificate
LLC’s are. An LLC is a company that has limited liability like a corporation but is treated like a partnership for tax purposes. The LLC is more flexible and should be used when more flexibility is needed than the corporate form provides. The corporate form has the advantage of being well known and therefore more predictable.
Buying or selling a business is an important step in your future. For the seller, you have put years of hard work into your business. Be sure there are no hidden pitfalls in the agreement that the buyer is proposing.
If you are the buyer, be sure you are getting what you paid for and that there are no hidden liabilities.
-What are you buying or selling?
-Do you have a clear and concise listing of the assets ?
-What is kept by the seller?
Things such as post office box, phone numbers, accounts receivable, patents trademarks, websites, email addresses and business names are all important considerations in arriving at a fair sales price.
-What status do accounts receivable and accounts payable play in your agreement?
–Are there any leases of real property or equipment?
-What kind of warranties or promises has the seller made?
-Will the seller be allowed to go into business or work for someone else within the same line of work?
(This could greatly diminish the value of the business you’re buying.)
These are just a few important questions which must be carefully considered when you are doing a business. You should always consult your local counsel to assist you.
THIS INFORMATION IS GENERALIZED. YOU SHOULD CONSULT WITH AN ATTORNEY REGARDING YOUR SPECIFIC SITUATION.