Drafting and Filing Documents

When starting a new business, small business owners face a world of possibilities and challenges. The journey is exciting and complex, from choosing the right type of business entity to understanding legal documents.

Depending on the legal structure you choose for your business, you may have to file certain documents with the state. For instance, anyone forming a limited partnership must file a certificate of limited partnership. This document includes personal information about each of the partners. Sole proprietorships, meanwhile, have no such requirements.

This article guides you through the essentials of drafting and filing documents for your startup. Whether you're a sole proprietor or part of a startup team, you'll find valuable insights into business plans, employment agreements, and more.

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Sole Proprietorship

A sole proprietorship is the simplest form of business structure. If you're doing business alone, this might be your choice. It means you're the only business owner responsible for all company aspects. No state requires a sole proprietorship to file organizing documents with the state.

Drafting documents for a sole proprietor involves fewer legal issues. But, you must still consider essential factors like business name (DBA — doing business as). You'll need an employment agreement if you're hiring employees. Also, ensure that you have any necessary licenses and permits. Remember, as a sole proprietor, you're personally liable for debts and legal actions against your business.

General Partnership

No state requires a general partnership to file organizing documents with the state. You and at least one business partner share ownership and management responsibilities in a general partnership. Partnerships should have clear partnership agreements to prevent misunderstandings. These legal documents outline each partner's role, sharing profits and losses, and how to resolve disputes. Remember to register your partnership and understand the implications of shared liability in doing business.

Limited Partnership

Limited partnerships (LPs) differ from general partnerships. It includes general partners, who manage the business, and limited partners, who invest but don't manage daily operations. Drafting documents for a limited partnership involves creating a detailed partnership agreement. This includes each partner's rights and responsibilities. It also details investments and how profits and losses get distributed. Limited partners usually have limited liability. This helps protect their assets from the business's debts.

Each state also requires a limited partnership to file a Certificate of Limited Partnership. This form usually goes with the state's secretary of state. Generally, states need the certificate to include the name of the LP (including initials or some other designation that makes the public aware that the business is an LP). It should also include the name and address of each general partner. Included should also be a mailing address for the LP and the latest date the LP will dissolve.

Remember to strictly adhere to the state's requirements for forming an LLP. Otherwise, your limited partners may have personal liability for the LP's debts and obligations. Finally, if you are doing business in other states, meeting their requirements is vital as well.

Corporation

A corporation is a more complex business entity. It's separate from its owners, offering liability protection. Corporations need a detailed business plan, articles of incorporation, and bylaws.

Setting up a corporation, you must follow the laws of the state of incorporation. Articles of incorporation contain the corporate name and the purpose of the corporation. They also include the number of shares the corporation may issue (and the classes of stock if it's a "C" corporation). The articles will also have the registered office's address and the registered agent's name. Finally, it should also include the names and addresses of each person forming the corporation ("the incorporators"). Filing fees apply when registering a corporation.

Before the corporation comes into existence, the incorporators will need to draft bylaws. They must hold an initial meeting of the incorporators and the board of directors. At this meeting, members will elect officers. Corporations also face specific legal and Internal Revenue Service (IRS) requirements. This is especially true about taxes and shareholder rights. Be aware of all these requirements when starting a corporation.

Limited Liability Company

A limited liability company (LLC) must file articles of organization with the state. Most states require this document to include the name of the LLC. It should also include the initials or other notation that the company is an LLC. The articles should also detail the period of duration (some states permit perpetual duration). Give the registered agent's name and address and the principal office's address, too.

Usually, an LLC has an operating agreement like a general partnership, but the company doesn't have to file this with the state. Drafting an LLC operating agreement is crucial. It should cover membership, management structure, and how profits and losses get divided. LLCs also need to file with the state and pay a filing fee.

Although most states allow one-member limited liability companies, a few still need at least two members. This entity suits various types of businesses, from startups to real estate startups.

More Considerations for All Business Entities

Small business owners of any business entity should also consider the following:

• Intellectual property: Protecting your ideas and inventions is crucial. Consider filing for patents and trademarks as part of your business strategy.
• Employment agreements: If hiring employees, draft clear employment contracts. These should detail roles, responsibilities, salaries, and other employment-related covenants.
• Tax responsibilities: Different business entities have different tax obligations. Understand your tax responsibilities with the IRS to avoid legal issues.
• Non-disclosure agreements (NDAs): If sharing sensitive information with partners or employees, NDAs are essential to protect your business's confidential information.

Whichever Business Form You Choose, Get Help

The type of legal structure you choose for your business will determine how you pay taxes, the organization of the company, your liability as an individual, and other factors. To ensure the proper structure for your business, consider using a reputable business formation service or speaking with a business law attorney to form your business according to your state's laws.