As you sit in front of your computer, you’re a person. You can go outside and start selling lemonade on the corner if you want to but if you plan to do much more than that, you need to organize your business as a standalone entity — something that you (and possibly others) may own but which exists independently of you.
In the eyes of the law, a corporation is an artificial person, with most of the rights and responsibilities of a real person. The advantage of this is that it reduces what attorneys call your “exposure” — meaning that you are not directly responsible for every action your business takes. While there are always exceptions, this generally means that if someone is harmed — or claims to have been harmed — by your business, he can sue the business, but not you personally.
Formally organizing your business also requires you to treat it as a real business, not just something you do in your spare time. As a corporation, it will have its own bank account, its own credit card and will be responsible for filing tax returns. If your business is profitable, it’s quite possible it will pay taxes at a lower rate than you would as an individual. If it loses money — and many businesses do — you and any other owners will be able to deduct a portion (or sometimes all) of the losses from your individual taxes.
This section contains information on each of the popular forms of business organization — the LLC, “S” Corp., “C” Corp. and so on. But before we jump into that, let’s consider the little matter of domicile.
“Domicile” is just a fancy word for where your business is incorporated — which state has recognized it as an artificial person. You may have heard that Delaware is a popular domicile for corporations, and that’s true. Delaware has very favorable laws for corporations: it protects your identity, has very reasonable fees and taxes and is generally seen as a business-friendly state. It also has a separate court system, called the Chancery Court, dedicated to business-related disputes, meaning the cases tend to move more quickly and the judges tend to be well-read on corporate law. Other popular domiciles include Nevada and Florida.
But, you may say, I don’t want to move to Delaware or Nevada. The good news is you don’t have to. You can organize as a Delaware corporation and continue to live and operate your business in New York, California or wherever you want. You will need to register with your state and possibly get a local business license but these are minor considerations compared to picking your domicile.
While you can live anywhere and choose Delaware, Nevada or any other state as your domicile, you will also need a lawyer who is experienced in the laws affecting business in your state. Nearly every attorney who practices business law is familiar with the laws of Delaware, Nevada, et. al., and can handle your incorporation there.
More importantly, your attorney should also be located in your state, ready to advise you on everyday decisions and, more importantly, come immediately to your aid when problems arise.
And rest assured, problems will arise. The United States is a very business-friendly country, despite what you may hear on the campaign trail. You can open nearly any kind of business you want, run it however you want (within limits, of course) and pay taxes on your profits, but just as in our personal lives, problems arise in business. You may have disagreements with suppliers, trouble collecting from clients and customers or disputes with local governing agencies. A local business attorney can handle these efficiently, keeping small problems from turning into big ones.
We have a nationwide network of attorneys who practice business law. They advise start-ups, counsel growing businesses and help you network with the people and agencies who can help you raise capital, attract new business and expand your influence in your community. No online service can substitute for a lawyer who is down the street from you (or a short drive away).