How Business Attorneys Help New Businesses
Attorney Greg Biernacki discusses how a knowledgeable business attorney can lighten the load of starting a new business.
- Hiring an attorney early on can save you from potential negative tax implications.
- Working with a business attorney from the beginning alleviates the pressures of doing it all on your own, allowing you to focus on building the business.
- Knowing what type of business you are starting can protect you from liability later on.
When Starting a New Business at What Point Should I Hire a Business Attorney?
When starting a new business, you should consider hiring a business attorney almost right from the beginning. There are a lot of mistakes that can be made that will get you in trouble, just by checking the wrong box, it’s that simple. For instance, you are being treated as an s-corporation, as opposed to a disregarded entity or a partnership, resulting in tax implications. It’s wise to talk to an attorney from the outset.
When you have the idea, to begin with, come in and have a consultation with our firm. Usually, we can sit down and explain what we can do for you before we even start the meter running. This way, you know if you should go with an LLC, an S-Corp, or just a sole proprietorship. Whatever business you want to form, you can be confident you can take the right path to get there.
What Important Conversations Do You Have With Clients Wanting to Start a Business?
Each conversation with a client considering starting a business begins with the same important questions:
- What do you want to do?
- Are you going to have employees?
- Are you going to run this as a single member or partner with your spouse?
- Are you going to partner with someone other than your spouse?
- If you’re going into business with a partner, where is the startup money coming from?
- How do you want to run the business in terms of taxation purposes?
First, understanding how you want to function is very important. Usually, the clients that come into our office already have those answers ready. That helps us prepare the documents necessary in a timely fashion so we can get your business formed as quickly as possible.
Once we have our initial meeting, it usually takes just a few weeks to get the business formed. We complete a name check, to see if the name has already been taken, then file documents with the IRS to get your EIN. From there, you can open a checking account in the business or trade name.
When Forming a Business, What Are the Different Entity Options to Choose From? How Do I Know Which Model Is Right for My Business?
In Pennsylvania, you can form a business in several ways:
- Two people working together splitting the profits.
- Sole proprietor, where you alone operate the business.
- You can form a Limited Liability Company (LLC)
- You can form an S-Corporation, which is a little less cumbersome than the standard C-Corporation, like IBM or GM.
Once you sit down with your attorney, there are so many different variations that make sense to choose one formation over the other. To decide the best fit for you, we typically work with your accountant or other accountants to make sure your business is running smoothly. We are not an accounting firm, so, we’ll work hand in hand with your accountant to make sure you are taxed appropriately.
What Tax Basics Should I Be Concerned With When Starting My Business?
There are a lot of issues around taxes we help our clients understand when first starting a business. We explain what they are going to be liable for in terms of payroll taxes. One of the major issues you want to avoid is the self-employment tax the IRS will charge you. This is your primary mode of income; you are going to get hit with self-employment tax that covers Medicare and Social Security. If you were working for someone else, your employer would already pay this for you. You need to make sure you are holding back some of the income you are generating from your business to pay your taxes and to pay them in a fashion that the IRS wants you to pay.
There are quarterly estimates that a lot of people don’t understand. If you are coming from a regular nine-to-five or W-2 job, where the employer takes care of those issues for you, it’s quite a shock at the end of the day when the IRS is knocking on your door for penalty and interest because you failed to pay proper taxes all along. We will work with you and usually your accountant(s) to make sure that your business is operating appropriately, and you are paying the right amount of tax.
What Proactive Measures Can Business Owners Take to Avoid Potential Litigation and Other Issues?
One of the main reasons attorneys recommend forming a business is to protect yourself from personal liability. Oftentimes, insurance isn’t going to cover you if you have a catastrophic loss, they might not cover a certain amount. Now you might become personally liable, that’s why you want to form an LLC—to protect yourself from those catastrophic losses.
It is very important to consider liability if you are going to buy a property with an LLC or are considering rental properties. A lot of our clients come to us wanting to own property in their own name. This is where you see liability really get them down the road. My recommendation to everyone owning property in their own name is to form an LLC to protect themselves; to keep their personal assets out of the reach of any potential liability.
It’s also important to consider forming that business before you even decide to put a bid on or purchase that property. You want to transfer that property directly into the LLC, as opposed to transferring it from your name into the LLC, after you’ve already purchased it. If not, you will be hit with a transfer tax—a lot of people don’t understand this. They think, this is my property that I own 100% and I’m transferring it to the LLC I own 100%… Unfortunately, that transfer is 100% taxable and you are going to be on the hook for it on both ends. To avoid this, form an LLC from the start and buy the property in the name of the LLC.
For more information on Business Formation Laws in Pennsylvania, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (412) 557-7726 today.
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