When starting a new business, choosing a corporate form is one of the first and most important decisions you’ll have to make. Should you operate under your name, or establish a separate legal entity? How many partners will you have, and will you ever need to seek out investors? Knowing the answers to these questions and consulting with a commercial law attorney will ensure you choose a corporate form that provides the tax and liability benefits you need.

4 Factors to Consider When Choosing a Corporate Form

1. Your Tax Obligations

Corporations only pay 21% of their income in tax, while LLCs and sole proprietors usually pay the higher individual rate. However, in the long run, corporate shareholders may wind up paying more since tax will also have to be paid when dividends are disbursed.

2. Your Legal Liability

A sole proprietorship may be the simplest business form to establish, but it also leaves you personally liable for debts and other legal liabilities. Corporations and LLCs are completely separate legal entities, so you won’t lose your personal assets if the company fails or loses a high-value liability suit.

3. Your Need for Investors

If you ever plan to seek capital for expansion or the development of new projects, you will likely need to incorporate your business. Commercial law makes it extremely difficult for LLCs, partnerships, or sole proprietorships to attract new members or shareholders.

4. The Amount of Paperwork Required

No matter what corporate form you choose, you will need to renew your filing with the state every year. Corporations require business owners to submit more detailed paperwork, which many small business owners find burdensome.

If you’re planning on opening a new business in Honolulu, Donald L. Spafford, Jr., Attorney at Law has the commercial law expertise to help you get started on the right foot. This law firm has provided sound legal counsel and professional insight to entrepreneurs throughout the islands for over 32 years, building long-term relationships and a reputation for dedicated service. Visit their website to learn more about their commercial law expertise, or call (808) 532-6300 to schedule a free consultation.