Starting a business can be a very exciting time and it can also prove to be stressful as the task of procuring new clients and transitioning your idea into profits can take some time to come to fruition. However, there are initial steps that should be considered by every entrepreneur when embarking on the exciting endeavor of beginning a new business. Considering traditional businesses, I wanted to explore two business types: Sole Proprietorship and General Partnership.
The default classification of one individual that starts a business would be Sole Proprietorship. Sole Proprietorship does not involve any document filings with the Secretary of State. If two or more individuals start a business it is considered a General Partnership. The assets and liabilities absent any agreement are assumed to be split equally amongst each partner. However, the down fall to each of these entities would be that should there be any liability each individual would be liable for the entire amount of the debt. In the eyes of the law, for both of these businesses, the individual and the business is considered one in the same.
A primary disadvantage of Sole Proprietorships and General Partnerships is joint and severable liability. This means that should there be any debt or law suit judgment that is against the business, each individual will be liable personally for the debt or judgment. Should the assets of the business not be sufficient to satisfy the judgment, the party that is owed the debt or judgment has rights to seek satisfaction against the personal assets of any party associated with the business. Therefore, it is advised to speak with our firm when considering starting a business to decide which entity is right for you. Not every business will need to file to be an Limited Liability Company, Corporation, Professional Limited Liability Company, but knowing when to file to have that additional level of protection and security is essential knowledge.
For more information contact Maitland & English Law Firm, PLLC at 919-265-0800.