Business Formation Frequently Asked Questions (FAQ)
Introduction
Business Formation: Whether you are starting your first business or an experienced business person needing legal advice about a business decision, it is important to have an attorney who knows how to protect your Tennessee business.
Business Formation should be done properly in the beginning since it can have far reaching consequences. It should not be entered lightly and every filer is well advised to have a quality legal and financial team guiding them.
At Ingraham, Pautienus, & Tidwell our firm knows the finer details of Business Formation & Business Practice Law, what to do and what to avoid, and how to protect our clients so that they can experience the best of possible outcomes.
At Ingraham, Pautienus, & Tidwell our firm's partners, Robert Pautienus and Nick Tidwell lead our team for all matters related to Nashville and Tennessee Business Formation & Practice concerns.
You may contact Robert directly through this website at Robert Pautienus or Nick at Nick Tidwell, you may use our firm's on-line Contact Form, or call us at (615) 370-3010 for immediate action on your case.
F.A.Q.
Frequently Asked Nashville Tennessee Business Formation Law Questions
The following questions are among the most frequently asked of our firm relating to Business Formations and how our Nashville Tennessee Business Practice Law Firm of Ingraham, Pautienus, & Tidwell addresses these issues.
If your questions are not answered here or you need more information please call us or send them through our Contact Form.
You may click on each FAQ below to see or hide an answer or ...
The bottom line is personal assets protection! In the cases of most business law suits your business and personal assets are treated as separate assets and in almost all cases your personal assets will be protected from judgments. If you are not incorporated and have a business, your personal assets, such as your savings, investments and your home are at risk. Selecting the right entity form, such as a corporation, is an important aspect of asset protection. We can help you here.
Although we believe that in most situations the advantages are superior to the disadvantages, you will have increased paperwork, some additional taxes, a need to file additional tax returns each year, and you may give up some personal tax credits and/or savings.
Under almost all circumstances you lesson your personal liability by incorporating. Only the money put into the business can be seized or lost in the event you are sued, the business fails or cannot support itself financially
We live in a litigious (lots of law suits) society. Companies are sued for accidents occurring on their property or as a result of their employees, product liability even if you are reselling others' products, lack of performance on a contract, and for just about any possible reason. You should know that you can be sued for almost anything - they may not win but you will have to defend yourself. Upfront business formation planning with our law firm can be immensely helpful in avoiding liabilities up front
One of the biggest advantages of incorporating involves tax breaks including income shifting, fringe benefits, retirement accounts, write offs, depreciation and many other breaks not available to individuals. Upfront business formation planning with our law firm can be immensely helpful in selecting the right form of business entity that best meets your needs.
A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.
A partnership is formed when two or more persons agree to carry on a business together. General Partnerships are business partnerships featuring two or more partners in which each partner is liable for any debts taken on by the business (unlimited liability). Because the partners do not enjoy limited liability, all the partners' assets can be involved in an insolvency case against the company. Because each of the partners has unlimited personal liability, a general partnership is considered the single most dangerous form for conducting one's business. As an alternative you should consider an LLC. Read the FAQ below on LLCs. We strongly recommend that you set up a consultation with our firm if you are considering any type of partnership.
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
The limited liability partnership (LLP) is a business with more than one owner, but unlike general partnerships, limited partnerships and limited liability partnerships offer some of their owners' limited personal liability for business debts.
A C corporation is a legal entity that for federal tax purposes exists separately from the people who own, manage, control, and operate it. The corporate income, losses, deductions and credits do not pass through the corporation directly to the stockholders/shareholders, but rather the corporation files its own income tax return. A C corporation issues shares of its stock, as evidence of ownership, to the person (s) or entities that contribute the money or business assets the corporation uses to conduct its business.
The stockholders or shareholders own the corporation and are entitled to any dividends the corporation pays. If the corporation liquidates, they are entitled to all of the corporation's assets after all creditors are paid.
S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
Have only allowable shareholders
including individuals, certain trust, and estates and
may not include partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have one class of stock
Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.
Non-Profit Corporations (Not-For-Profit-Corporations) are tax exempt corporations. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Non-Profit Corporations are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.
The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. In addition to a 501(c)(3), there are other 501(c) classifications, such as a 501(c)(4) (a social welfare organization).
Non-Profit Corporations are challenging to set up properly and can take a long time to receive approval. Because of their tax exempt status, there are numerous restrictions placed on non-profit corporation, and various issues that need to be considered. We strongly recommend that you set up a consultation with our firm if you are considering the formation of a non-profit corporation.
Corporations are artificial entities that are created by state statute and that are treated much like individuals under the law, having legally enforceable rights, the ability to acquire debt and to pay out profits, the ability to hold and transfer property, the ability to enter into contracts, the requirement to pay taxes, and the ability to sue and be sued.
When a corporation is a sham, engages in fraud or other wrongful acts, or is used solely for the personal benefit of its directors, officers, or shareholders, courts may disregard the separate corporate existence and impose personal liability on the directors, officers, or shareholders. In other words, courts may pierce the "veil" that the law uses to divide the corporation (and its liabilities and assets) from the people behind the corporation. The veil creates a separate, legally recognized corporate entity and shields the people behind the corporation from personal liability. There are some critical steps that should be taken and maintained in order to protect against the piercing of the veil.
Disclaimer
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.
At Ingraham Pautienus & Tidwell, PLLC, we represent people throughout Middle Tennessee, including clients in Nashville, Brentwood, Franklin, Murfreesboro, Gallatin, Clarksville, Davidson County, Williamson County, Rutherford County, Robertson County, Sumner County, Wilson County, Putnam County, Maury County, Coffee County, and Cheatham County.
