Mayhall Fondren Blaize

What business law structure to choose for a new company?

When forming a business in Louisiana one of the first tasks is to decide what kind of business structure to choose. The owner(s) will choose the business law framework that best fits the operational model of the new company. The simplest form is the sole proprietorship, which consists of one person as the sole owner who has complete control over the business.

The sole proprietorship does not shield the owner from debts of the business. Because the owner and the business entity are essentially one and the same, the sole proprietor's personal assets are subject to seizure to satisfy money judgments against the business. This is a risk that many business owners do not want to assume.

Partnerships consist of two or more persons who will divide the profits and losses among themselves. In a general partnership, the partners have personal liability for the partnership's debts and judgments. However, a limited partnership, and some state statutory forms of partnership, do have features of limited liability. Regarding taxes, each partner reports his or her share of the profits (or losses) on their respective personal income tax returns, without it being taxed first to the partnership.  

The LLC is a limited liability company that is popular due to its flexibility and comparative freedom from regulations. The LLC provides for the profits of each member to run through to the person's personal tax return, similar to a partnership. Finally, the most complex business entity, the business corporation, is structured on a stock ownership basis. Shareholders own the business in proportion to the numbers and classes of shares that they have purchased.

Shareholders enjoy limited liability but they may be subjected to "double taxation,"  meaning that the company is taxed on its income and the shareholder also pays tax on that income on his or her personal return. There are ways, however, to structure some smaller corporations to avoid double taxation. In Louisiana and all other states, the available business structures must be evaluated carefully. Importantly, a business law attorney and a financial expert, such as a certified public accountant, are necessary for the kind of careful guidance that will assure maximum efficiency in starting out.

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