Many businesses, particularly small businesses, make the decision to seek some type of legal liability protection, as well as gain possible tax advantages. This is typically done by forming a business organization (entity) that will effectively separate the business owner(s) from the business itself. In doing so, assuming that the entity is properly formed and maintained, the liabilities and obligations of the business become the responsibility of the business entity, and not its owner(s).
Two prominent entity types are Corporations and Limited Liability Companies (LLCs). Each entity type will provide the necessary liability protection the business owner seeks. However, the primary difference between Corporations and LLCs is how the IRS treats them for tax purposes. In addition, Corporation status is generally more formal in its structure and may be better suited to larger, more established businesses. LLCs, being slightly less rigid, tend to work better for newer and smaller businesses.
The amount of time that it takes to form a business entity may vary based upon a variety of factors, such as how quickly you assemble and provide the necessary information and how rapidly the state of record processes the request. The process may be completed in as little as 1-2 business days, but could also take as long as 5-10 business days (some states have electronic filing capabilities allowing entities to be formed very quickly).
If your business entity has been formed properly, you are compliant as of that moment. However, there are specific ongoing Corporate and LLC Formalities that must be followed in order to remain compliant. To learn more about Corporate Formalities, please refer to our Ongoing Compliance Page.
Corporate Veil is a legal metaphor for the personal liability protection that a Corporation or LLC provides to its owner(s). In other words, it is a layer of separation between the business entity and its owner(s) and protects them from being personally liable for the company’s debts or legal obligations. However, this protection is not ironclad or impenetrable.
The Corporate Veil is pierced when a court determines that the owner(s) have disregarded the legal separateness of the Corporation or LLC by failing to properly observe the necessary Corporate or LLC Formalities. If the company’s business was not conducted in accordance with statutory requirements, or was simply a façade for illegal activities, then the Corporate Veil may be pierced and the owner(s) can be held personally liable for the company’s obligations. Want to find out more on what exactly it means to pierce the Corporate Veil?
Failure to properly observe Corporate Formalities, governance and other compliance requirements, creates grounds for the Corporate Veil to be pierced leaving the business owner(s) exposed as they can be held personally liable for the company’s obligations.
DBA stands for “Doing Business As” (also referred to as Assumed Name). If you choose to operate your business under any name other than your own personal name or the legal entity name that owns the business, then you’ll need to register it with the appropriate authorities. This process is known as registering an Assumed Name, or DBA. The legal name of your business is required on all government forms and applications, including your application for employer tax identification numbers, bank documents, licenses, permits, marketing materials, and company documents. Read more about what a DBA is.
A registered agent is a business or individual with a permanent physical address in the state your business is registered in, who is designated by the company to receive service of process, annual renewal information, or other official notices from the state. A registered agent can be a partner, employee, or third-party, but should be someone that you trust to handle such business matters. Read more about what a registered agent is.
An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. While there may be certain situations when an EIN is not necessary, it is generally a standard practice to acquire an EIN for the business as it further establishes the identity of the business as being separate from the business owner(s).
Without knowing and understanding the numerous aspects involved in properly forming a business entity, using the DIY (Do It Yourself) method is extremely risky and will most likely leave you unprotected. By engaging with a trusted advisor who possesses the necessary knowledge and experience in this specialized area, you can be confident that your business will be established properly.
If your business is just starting out, knowing which type of entity formation to establish can be a confusing and daunting process. S-Corps and LLCs perform some of the same functions and have some of the same benefits to owners. However, there are some major differences between the two entities that business owners must consider before committing to either entity. Read more on LLC vs. S-Corp.
Safe Shield Consulting believes in the entrepreneurial spirit that built the Unites States. Our mission is to help every entrepreneur realize their dream of owning a business, and to protect that business through compliance monitoring. We know that there are a lot of talented and creative individuals capable of forming fantastic businesses, but most don’t know how to start a business. So the entity formation experts at Safe Shield have constructed a review of the four main types of businesses to kick start your journey to success. Read more on How to Start a Business.
In order for businesses to stay compliant, they must first be formed the right way. Many businesses, especially small businesses, recognize the need for legal liability protection. This type of protection essentially separates the business from the business owner(s), ensuring all liabilities and obligations are the responsibility of the business entity and not the business owner(s). Read more on why to incorporate.
Articles of Incorporation (also referred to as Corporate Charter or Certificate of Incorporation) are the main rules that govern how corporations are managed in the United States and Canada. These documents are generally filed with the state or other designated organization. Read more on what Articles Of Incorporation are.
Company Formation is the building block of your company, it is the foundation on which you obtain legal liability protection and maintain the compliance of your business. This also serves the all-important purpose of avoiding prosecution or fees from the government. This type of protection essentially separates the business from the business owner(s). Read more on Company Formation.
Company Registration requires many steps ranging from choosing a company structure that will best serve your business; to registering with the IRS and obtaining an EIN. The entity formation experts at Safe Shield can help you decide which entity is best, and help you register your business. Read more on Company Registration.
An EIN, or Employer Identification Number (also known as a Federal Tax Identification Number) is the way that the IRS identifies your business. Business owners use their EINs like they would use their Social Security numbers. Read more about EINs.
Safe Shield is sought by many businesses who desire to cut their liabilities and to succeed in their fields. Our Formation Service implements a comprehensive process to initiate your business safely and successfully. Read an entire in-depth article on Forming a LLC.
If you have additional questions or would like more information on our Business Formation System, our Ongoing Compliance Management, or any other services that we provide, a Safe Shield representative would be happy to assist you.