How to Properly Incorporate a Family Business

June 23, 2015

~by Donya Zimmerman~

When starting a family business, you’ll need to determine the best way to incorporate it so you can protect your assets. By incorporating the family business with the proper governmental agency, you’ll ensure that the business is protected, and the business assets and personal assets are protected. With this type of protection, the family can enjoy being in business without the fear of losing everything. Also, it is good to have the proper business licenses needed to conduct business in certain states.

Protect your assets in your family business

Protect your assets in your family business

Here are the different types of incorporation that can be used for a family business to be seen as a legal entity:

Sole proprietorship. Simplest business form and not a legal entity. The business is not legally separate from the owner. The owner’s personal assets and obligations of the business are not distinguished. 

General Partnership. This is the simplest form of partnership and is created when two or more individuals engage in business together for profit. A general partnership can begin with just a verbal agreement and a handshake. There is no liability protection in this form of business, and every partner is equally liable for all debts and obligations of the business. Also, the personal assets of each partner can be used to pay such debts.

Limited Partnership (LP). There are two classes of partners (general and limited).  The general partners normally handle the day to day operations of the business, and are held personally liable for the business debts and obligations. Limited partners only contribute money and capital to the business. The limited partners are not involved in the daily operation of the business, and their personal liability does not go beyond their capital contributions to the business.

Limited Liability Partnership (LLP). This business entity is a hybrid and similar to a Limited Liability Company (LLC). All partners in the business handle the daily operation and management of the business. Unlike the Limited Partnership, Limited Liability Partnerships ensures that all partners’ personal assets cannot be used to satisfy the business debts and liabilities like an LLC. LLP partners are ensured that they will not be held accountable for the acts of other partners (they’ll have personal liability protection).

Limited Liability Company (LLC). An unincorporated business that can be formed by one or more individuals with no personal liability for debts of the LLC. An LLC is unique because for statutory purposes, it is treated like a corporation regarding limited liability of partners and partnership status for tax purposes.

Corporation. An independent entity. The corporation is separate from the owners of the business. There is no personal liability for owners of the business because the corporation is responsible for its own debts and liabilities. The business entity outlasts the death or disability of all stockholders.

S-Corp and C-Corp. These have the general guidelines of a corporation. Must be registered with the governmental agency, similar to a corporation. There is no difference between S-Corp and C-Corp for purposes of Corporate Law.  S-Corp does not have double taxation like a C-Corp.  C-Corp has double taxation because it is treated as a separate taxable entity, and distributions to stockholders are generally treated as dividends. S-Corp is generally a better option than C-Corp because it provides liability protection of a corporation while allowing tax treatment similar to a partnership.

This is the second article in my Starting a Family Business series. Stay tuned for more articles in this series.

You can read the first article in this series here: The Basics of Starting a Family Business

.


Share this post on freedom to choose


.

Meet the Author: Donya Zimmerman

Donya Zimmerman

Donya Zimmerman

Donya Zimmerman is a business consultant, mediator, and legal professional with over ten years of experience. Donya is also a public speaker and aspiring author. 

She is owner of Family & Community Mediation and Business Consulting (FACMBC) and Powerful Biz Woman (subsidiary of FACMBC), both of which are based in Baltimore, MD.

Services provided by FACMBC:  Mediation and Conflict Resolution Services; Business Registration Assistance; Business Plan Drafting Assistance; Business Certification Assistance; and Business Organization Assistance. 

If you are thinking about starting your own small business or non-profit organization, do not hesitate to contact me because I can show you how to do so.

For more information about Donya:



 

Categories

More Posts:

#InvestingInYOU: Consider Coaching

#Investing in YOU: Consider Coaching Mindy Jo, M.B.A. & M.Ed. Certified life coach & founder of worryaboutYOUtoday.com Life coaching. What is it? What is it NOT? Life coaching can have many meanings based on the type of coaching that is being offered, such as:...

Photography Niches That Do the Best Business

Do you love the creativity and flexibility of photography but can’t figure out how to start a successful photography business? Not all photography niches are created equally, and your success in a niche might depend on where you live.  Here are a few types of...

The Power of Women-Owned Small Businesses

     Women-owned small businesses are on the rise, and their impact is undeniable. In fact, in 2019 alone, women-owned nearly 12 million businesses that employed nearly 9 million people and generated over $1.9 trillion in revenue. From retail to technology to finance,...

Nyago Michael Emmanuel

We invite many people who can invest in our Akiba Ya umoja community benefit savings and investment group of Uganda to enable us expand our operations in Uganda

A Five-Step Guide to Starting a Logistics Company

If you've been considering launching a transportation and logistics company, now is the moment. The transportation and storage sector is very important and profitable. Statistics show that by 2027, the global logistics market would have grown from its 2017 valuation...

The Best Ways to Scale Your Wealth Building

When it comes to building your wealth, you want to make sure that you are doing everything possible to maximize your returns. There are several different ways that you can do this, but not each path is right for each individual. Consider these three options to grow...

How To Promote Your Startup in 2023: Most Useful Strategies

Every startup hopes to make a splash when it first enters the market and find methods to get its name out there. This is when having a solid marketing plan comes in handy.  If you are a new business or an entrepreneur considering a startup, developing a digital...

6 Smart Ways To Stretch Your Startup Budget

Even a small business might cost tens of thousands of dollars to start. And if you're planning to start a business, it’s essential to know solutions on how to stretch your start-up budget because embracing the world of entrepreneurship is likely to come with a...

How To Launch A Product-Based Business?

In the last three years, we’ve seen the steady growth of solopreneurs and entrepreneurs get in league with corporates, releasing soulful products that make a difference. The product development phases of these individuals have finally begun to get all the credit it...

How The Right Upselling Techniques Add Value For Customers

Upselling techniques have several benefits, such as providing additional value to customers. Read this blog to find how the right techniques can do so.

#InvestingInYOU: Consider Coaching

#InvestingInYOU: Consider Coaching

#Investing in YOU: Consider Coaching Mindy Jo, M.B.A. & M.Ed. Certified life coach & founder of worryaboutYOUtoday.com Life coaching. What is it? What is it NOT? Life coaching can have many meanings based on the type of coaching that is being offered, such as:...

Nyago Michael Emmanuel

Nyago Michael Emmanuel

We invite many people who can invest in our Akiba Ya umoja community benefit savings and investment group of Uganda to enable us expand our operations in Uganda

All Categories

Business Operations

Entrepreneur Interviews

Marketing, Networking, & Social Media

Self Care & Personal Development

Working Moms

Business Software and Technology

Entrepreneurship & Small Business

Organizing Tips

Sales

Career Building

Family Businesses

Inspiration

Starting Your Own Business

Work-Life Balance

Communication

Hiring Help

Management & Leadership

Time Management & Priorities

Women in Leadership

Recent Posts

Elements That Should Be Part of Your Company Retreat

Elements That Should Be Part of Your Company Retreat

A company retreat is an excellent opportunity for team-building, learning new skills, and fostering relationships between colleagues. Whether your team is large or small, a well-planned retreat can be an invaluable investment in your company's success. We will explore...

How to Make Employee Health a Priority

How to Make Employee Health a Priority

Prioritizing employee health is crucial for creating a healthy and productive work environment. By investing in the health and wellbeing of your employees, you can improve morale, reduce absenteeism, and build a positive company culture. Here are some tips on how to...

Why You Should Run Your Business on the Latest Technology

Why You Should Run Your Business on the Latest Technology

In today's fast-paced business environment, keeping up with technological advancements is essential for success. Implementing the latest technology can offer numerous benefits, such as improved productivity, enhanced data security, and reduced costs.  Improve...

What are local links and how to earn them

What are local links and how to earn them

What local links are and how they might assist local businesses develop an efficient SEO strategy are covered in this article. Local links allow visitors to learn more about a region and its businesses by connecting websites from the same area that are relevant to one another. They must be pertinent to the neighbourhood and offer valuable resources or information. Content marketing, reviews, sponsored content, social media, and directories are all ways to generate local links.

Ways for Increasing Property Management Lead Generation

Ways for Increasing Property Management Lead Generation

Property management is not a simple job, there are multiple tasks that a property manager should complete for various property investors. Marketing is one of the difficult parts, but it’s crucial. You can only attract tenants to your property and gain income after you have generated leads. Therefore, you should try your best to come up with smart and effective strategies to get your company known.