FIRST STEP: determine what type of business entity to create.
Being a business owner comes with a lot of responsibilities, one of which is to ensure that your business is set up properly from the beginning. Many people attempt to set up their businesses on their own and later discover that they would have been better off creating a different type of business entity or that they set it up incorrectly. Having a consultation with an attorney and a CPA prior to forming a business entity can save you time and money by avoiding the need to “reinvent the wheel” later. Finding an attorney to assist with the creation of your business organization documents can also be essential in protecting a business and its owners from future legal problems.
There are multiple options when creating a business. Many people choose to operate as a Sole Proprietorship under their own individual name and file a Fictitious Name Registration of their business name with the Missouri Secretary of State’s Office (also known as a DBA). This has not technically formed a separate business entity. Other options in Missouri include creating a Partnership, Limited Partnership, Limited Liability Partnership, Limited Liability Company, or Corporation. Also, based on the way the company will be taxed, there are multiple options for operating as different types of Corporations or Limited Liability Companies. Determining the best business entity to create depends entirely on the goals of the business owner.
SECOND STEP: create the required documentation for your business entity.
The following chart will assist you in knowing if you have the proper documents:
Limited Liability Company:
1) Articles of Incorporation; 2) By-Laws
1) Articles of Organization; 2) Operating Agreement
1) Partnership Agreement
The biggest mistake made when there is more than one business owner.
When any type of business entity has more than one owner, having the proper written documentation is essential. Business owners usually split with one another eventually. Sometimes it is a friendly split, but sometimes it is not.
However, when the business relationship was not in writing, each owner has a different opinion concerning who owns which business assets and how the business should be divided. By having the agreement in writing, it reduces potential conflict.