Top 10 Questions to Ask When Determining Form of a New Entity

June 6, 2014. While a Limited Liability Company is usually my entity form of choice, there are a number of factors that play into choice of entity when forming a new company. Answer these ten questions and you’ll help your lawyer help you make the best choice.

1. Do the parties want profits and losses to pass through to their personal income tax returns?
2. Will all of the parties be actively involved in management?
3. How much capital is needed?
4. How much will be raised from third parties? Debt or equity? Likely sources?
5. What would the parties providing capital expect in return?
6. Is there a form of entity that the funding source prefers or, alternatively, would like to avoid?
7. What level of corporate formality is possible or desired?
8. Is the business ineligible for certain forms of entity?
9. How much flexibility is required for structuring ownership and management?
10. What is the expected length of the investment/venture and what is the exit strategy?

Most entrepreneurs appreciate the many benefits of forming a legal entity for the operation of their new business venture, such as shielding themselves from the liabilities of the business, raising capital, and providing a business framework. Do you understand why you want to form a certain type of entity? I always like to follow the fancy business school method of KISS (“keep it simple, stupid”).

For more information regarding business law or determining an entity form, contact the Goosmann Law Firm at info@goosmannlaw.com or call 712-226-4000.

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