Dispelling Business Formation Myths
Jan. 20, 2022
Starting a new business can be exciting and scary. Choosing the appropriate business structure, establishing required contracts, filing taxes, and applying for licenses and permits are vital to set up your new enterprise. However, there are collective popular notions and false assumptions surrounding business formation in Minnesota. Hence, getting proper guidance from an experienced Minnesota business law attorney is crucial to starting your company on the right legal foundation.
At Engel Professional Association, we have the knowledgeable legal guidance and brilliant advocacy to help clients in business formation matters. Our team can discuss your unique business goals and help you understand your legal options. We can help guide you through every stage involved in the business formation process and help you make intelligent decisions. We are proud to serve clients across Minneapolis, St. Paul, Mankato, Maple Grove, St. Cloud, and Woodbury, Minnesota.
Common Misconceptions About Business Formation
Unfortunately, there is a lot of misleading information and popular opinions about business formation. As a result, Minnesota business law attorneys must take time to educate clients about the entire business formation process, how to choose the right entity, and how to navigate the early development stages of the startup venture. Here are some of the most common misconceptions about business formations:
Misconception #1. Choosing a business entity is only important for large businesses.
A business structure or entity has to deal with the legal structure of a company. The business structure you choose will have a significant impact on everything, including day-to-day business operations, task allocation, filing taxes, and the amount of personal and business assets that are exposed to liability. Whether you are a small, medium, or large business, choosing a business entity is crucial.
Misconception #2. You have to be a U.S. citizen to own/operate an LLC.
This is a common misconception that is usually false. You don't need to be a U.S. citizen or company to form, own, or operate a Limited Liability Company (LLC) in the United States. Anyone, including foreign citizens and companies, can own or operate an LLC in the country.
Misconception #3. Incorporation provides absolute liability.
Absolute liability is imposed on a person or entity engaged in a potentially dangerous business who causes injury or harm to another person or property through negligence. When properly formed, an LLC or S Corporation can protect your personal assets from business-related lawsuits, damages, or losses. However, becoming incorporated can only provide business owners with limited liability. The legal structure doesn't safeguard your business assets.
Misconception #4. You won't have to pay taxes if you form an LLC in another state.
Forming your limited liability company in a "tax haven" state can be really tempting. However, this doesn't completely relieve you of your tax obligations. If you form your business in one state but operate in another state, you are still required to pay taxes in the state where your LLC operates. For instance, if you formed your business in Wyoming but conduct business operations in Minnesota, you must pay taxes on your Minnesota-based transactions.
Misconception #5. LLCs cannot be publicly traded.
Technically, a limited liability company (LLC) cannot be publicly traded. However, LLCs have a flexible tax feature which makes it possible to be structured as a publicly traded partnership or taxed as a partnership. Thanks to this feature, an LLC can issue shares in the partnership and trade ownership interest on a securities exchange.
Misconception #6. A sole proprietor can't have employees.
This is a mistaken belief. A sole proprietor (business owner) can hire employees. In fact, there is no limit on the number of workers a sole proprietor can hire. As the employer, the sole proprietor will be responsible for managing the business operations, filing taxes, and coordinating the employees.
Misconception #7. You don't need an attorney to help with the business formation.
The business formation process involves several steps, including choosing a business structure, business name, registering your business, applying for federal and state tax IDs, and getting the necessary licenses and permits. Due to your limited or lack of knowledge, navigating these steps without proper guidance can present various challenges.
Hiring an attorney to help with your business formation is crucial to help navigate key decisions, start off on the right legal foundation, protect yourself from personal liability, mitigate damages and losses, and ultimately set up your business for long-term success.
How Engel Professional Association Can Help
Business formation in Minnesota involves several complex processes. The choice of entity or structure –sole proprietorship, partnership, corporation, or LLC — can have substantial ramifications on different aspects of the business. Therefore, you need to work together with an experienced business law attorney for proper guidance and to help you navigate intelligent decisions.
Contact Engel Professional Association today to schedule a simple consultation with an experienced business formation attorney. Our dedicated team has the detailed legal counsel and strong advocacy you need to help navigate the early development stages and seek to establish a strong legal footing for your new enterprise. We are proud to serve clients across Minneapolis, St. Paul, Mankato, Maple Grove, St. Cloud, and Woodbury, Minnesota.