Common Business Formation Issues
Business formation issues remain common as people often believe that formalizing a business is simply filing the proper forms with the Minnesota Secretary of State. However, by simply filing the proper forms with the Minnesota Secretary of State, the business has only achieved being in good standing with the Minnesota Secretary of State and that does not form the corporate veil that is essential to prevent your personal assets from being seized to pay for a business judgment. In addition, it may result in the business and/or the business owners having to pay more taxes or other financial consequences than if the business had sought advice from an attorney and an accountant prior to forming the business.
Prior to starting your business, it is prudent to seek the advice of an accountant regarding tax consequences. In addition, it is prudent to seek the advice of a business attorney regarding the legal consequences. Your accountant and business attorney can advise you regarding the correct legal entity based on your business goals and projections. For example, it you are going to provide different classes of stock for financial rights, you will not want to be Corporation that files for the S-Corp election tax designation. In addition, if you are not planning on keeping minutes, then a Corporation is not the best fit because Corporations must keep minutes and follow corporate formalities. In addition, if you want other entities to become a shareholder, then you will not want to be a Corporation that files for the S-Corp election tax designation.
You want to seek advice as what type of legal entity fits within the business’s ownership structure, tax consequences, need for outside capital, need for transfers/succession planning, management structure, eligible ownership, the number of owners, etc. Once you have determined the type of legal entity that works best for your situation and you have filed the correct documents (including agreeing to be subject to the Minnesota Professional Firms Act (“Act”), if applicable) with the Minnesota Secretary of State, you then need to make certain that the legal entity has a corporate veil. For example, if you simply file the articles of incorporation at the Minnesota Secretary of State and you do not have bylaws, etc., your corporation does not have a corporate veil that protects your personal assets from being seized to pay for a business judgment. In addition, if your business is subject to the Act, before your business provide professional services, your business must first register with the board(s) having jurisdiction over the professional services that you are subject to under the Act. You also need to make certain that you have obtained any business licenses that are required under any state law or local ordinance. Finally, you need to make certain you have all of the proper tax identification numbers.
Spangler and de Stefano, PLLP assists businesses with legal entity formation, business dissolution, and the buying and selling of your business.
The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.