The first common mistake is failure to do research. Taking the time to do research and see what the market looks like for your intended product or service is part of avoiding failure in your first year of business. Who is your intended customers that you are trying to reach with your product or service? Have you spoken with business owners that are already in this industry? Don’t limit your research to close friends and family members, they might not be able to see what your objective is. Speak to other business owners in your area of interest in your city, state, and country.

The second common mistake is failure to form a legal entity or forming the wrong business entity. Today, it’s very simple for new business owners to do-it-yourself by submitting a single filing but internet programs do not prepare comprehensive, tailored documents or provide legal advice about your specific business and plans. Lack of appropriate legal support while forming an entity can lead to major issues down the line as your business grows! It is prudent to invest in the advice of legal counsel or a business attorney. Here at McClenaghan Law Group, we have experience representing various types of entities from small businesses and big dreamers to larger corporations and more experienced business people. If you’re thinking of starting your own business, call us today to set up a consultation with an attorney. We can help you decide which business structure is best fit for you!

The final common mistake is that business owners fail to have valid agreements in place! Every agreement between a business owner and someone else should be valid and in writing. Without properly written contracts you may be unable to defend your company during a dispute or lawsuit. This is important for clients, employees, vendors, and anyone else a business owner makes an agreement with. The written agreement should specify the agreed-upon terms of the business relationship or transaction. Not sure what makes an agreement valid? Give us a call and we can help you create a well-drafted agreement for your use. Similarly, all documents presented to you and your business should be reviewed by a licensed attorney who is experienced with that state law that controls the agreement. Not all attorneys can review all documents, but McClenaghan Law Group has you covered in Ohio and Florida!

Successful business owners take their time to the research and plan before launching their new business. In addition, they are not afraid to seek advice from others. Our team of experienced attorneys is here to help you succeed. If you would like to avoid trouble while starting your business, give us a call to set up a consultation! Our office number is 614-429-1053 or you can email courtney@lawdublin.com

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Sole Proprietorship: A sole proprietorship consists of an individual who owns a business by himself or herself. Regarding flexibility, a sole proprietorship is easier to form, usually cheaper, and gives the owner complete control of the business, however, it does not produce a separate business entity. More specifically this means that your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Also, raising capital is often more difficult in a sole proprietorship, because banks are often hesitant to lend to a sole proprietorship and sole proprietorships cannot sell stocks.

Limited Liability Company: A limited liability company operates similarly to S and C corporations (both discussed below) regarding liabilities. Having the Limited Liability Company limits the amount of personal liability and debts of its members in regard to the action of the LLC.

Partnership: Partnerships are the simplest structure for two or more individuals joined together in a business or venture. Each partner contributes to the business and is expected to share all profits and losses that the business may incur. There are two common types of partnerships: limited partnerships and limited liability partnerships. Having the LLC designation limits the amount of personal liability and debts of its members regarding the actions of the LLC.

Limited Partnerships: Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability usually have limited control over the company, which is documented in the partnership agreement. Profits are passed through to personal tax returns, and the general partner, the partner without limited liability, must also pay self-employment taxes.

Limited Liability Partnerships: A limited liability partnership is like limited partnerships but gives limited liability to every owner. It protects each partner from debts against the partnership, so they won’t be responsible for the actions of other partners. A limited liability company protects you from personal liability in most situations, such as your personal assets including your house, which won’t be at risk in case the company faces lawsuits or bankruptcy. Each member is considered self-employed and must pay self-employment tax contributions, but profits and losses are treated as personal income without facing the corporate taxes.

C-Corporation: A C corporation (C-Corp) is a legal entity that is separate from its owners. It can make a profit, be taxed, and can be held legally liable. They offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporate profits can be taxed twice both when the company brings in a profit and personally when dividends are paid out to the shareholders. A plus side for having a C-Corp is when it comes to raising capital because they can raise funds through the sale of stock. If a shareholder leaves the company or sells his or her shares, the business is unaffected.

S-Corporation: This type of corporation is viewed differently than a C corporation in regard to profits and losses. Some profits and losses to be passed through directly to an owner’s personal income without ever being subject to corporate tax rates. An S corporation does not pay taxes on profits when earned by the corporation, but rather pass the profit or loss onto the shareholders to be claimed on their individual income tax returns. However, there are limitations in S-Corps; S-Corps cannot have more than 100 shareholders and all shareholders must be U.S. citizens. Just like C-Corps, S-Corps have an independent life, and if a shareholder leaves the company or sells his or her shares the company can continue relatively undisturbed.

Nonprofit Corporation: Organized to aid in charity, education, religious, literacy, or scientific work, nonprofit corporations benefit the public. Often called 501(C)(3) corporations, this type of business structure is granted as tax-exempt status which means they do not pay state or federal income taxes on any profits it makes.

In summary, choose carefully; Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability. The Law Office of Charles H. McClenaghan can provide support and guidance to ensure your business is set up correctly! Contact us at (614) 429-1053 to set up a consultation!

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