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Legal Concerns When Choosing a Business Entity

Business Lawyer Maryland 

 Legal Concerns When Choosing a Business EntityWhen an individual or a group of people are considering starting a business, one of the most important issues to address is the type of business entity that will be utilized. Businesses entities are created by state law and include the following types of entities:

  • Sole proprietorships
  • Partnerships
  • Limited liability companies
  • C-Corporations
  • S-Corporations

The business formation that will be most appropriate for a particular venture depends on a number of issues and the choice of entity should always be carefully considered.

For this reason, anyone considering starting a business should always fully discuss their situation with a business lawyer familiar with the various business entities available and the potential effects of choosing one entity over another. At Brown | Gould | Kiely, we have more than 20 years practicing business law and are well-versed and experienced in the business and corporate laws of Maryland.

Ease of Formation

In some cases, the ease of formation is a factor in determining what type of entity to use. For example, if the proposed business has little risk of incurring liability or the people involved do not wish to devote a significant amount of time to filing paperwork with the state agency that oversees business formations, a sole proprietorship or partnership may be appropriate as these business formations can be formed with minimal formalities.

Personal Liability

One of the most common motivations for people who are starting a business to choose a particular business entity is to shield themselves from personal liability for any debts incurred by the business. In a sole proprietorship or partnership, the members of the company can usually be held personally liable for any business debts that are incurred, meaning that personal assets may be at risk if the business is sued or if it is unable to pay its bills.

When a business is organized as a limited liability company or corporation, the owners and officers of the company generally cannot be held liable for business debts. Additionally, certain types of partnerships can also provide partners with limited liability.

Concerns Associated with Growth and Financing

Other issues of significant concern to many business owners are the opportunities for growth and obtaining outside financing. For example, businesses that wish to “go public” should probably incorporate as corporations are the only type of business entity that are able to issue securities in order to raise capital.

In addition, corporations generally provide more room for growth and have a more formalized governance structure than other business entities. On the other hand, the formalities associated with forming and operating a corporation often involve significant barriers to entry for smaller operations and may stifle growth for smaller companies.

Contact a Maryland Business Lawyer Today to Schedule a Free Consultation

When starting a business, your choice of business entity can have a significant impact on the overall success of and growth potential of your enterprise. For this reason, anyone considering starting any type of business should be certain to their options with an experienced business lawyer Maryland clients recommend. To schedule a consultation with one of the business lawyers of Brown | Gould | Kiely, call our firm today.