Running a business these days can be more complicated than many people think. I frequently meet with people who are starting a business who come to me to set up a corporation or a limited liability company and discuss what they will need to do to get the administrative things out of the way so they can actually do the work they are starting the business to do. And far too often, when the conversation departs the realm of the general information and gets down to the choices they need to make, the client will ask me “Which should I chose, the corporation or the LLC?”, and I will respond with a question of my own: “What does your CPA or accountant think you should do?”, and then I see it. The blank stare, followed by a look of confusion. Then the inevitable question. “Why would I ask the accountant? Isn’t it a legal question?”
The fact of the matter is that choice of entity is a legal question, legal considerations are not the only considerations. If your concern is for liability protection, there really is no difference between a corporation and an LLC (if you observe the formalities). From my perspective as a business attorney, the nature of the business itself, and how the business will be owned will weigh more into the decision than the question of liability. But there can be some serious tax considerations that may, and should, override other considerations. This is why I want to know who the client’s CPA is, and what their CPA thinks about the choice of entity, and provisions that may be necessary in a shareholder’s agreement or an operating agreement. This approach may seem unnecessarily costly to some clients, but tax planning at the beginning of a business venture is far less costly than trying to mitigate a tax problem later, or as I am fond of saying “Fixed haircuts cost extra.”
But your team as a business owner shouldn’t just stop with your attorney and your CPA. You should also have an experienced insurance professional. When I meet with resistance at this suggestion, I explain it like this: “You hire the CPA to keep more of what you earn. You hire me to keep your personal stuff separate from your business stuff. But you need to hire a good insurance person to keep your business.”
There are a number of things that a business does that requires insurance. If you lease space, your lease invariably requires you to carry general liability protection. If your business owns vehicles, you need to insure them. If you deal with the public, you need insurance. Dealing with one person or group on this can help you to make sure that you aren’t under insured, over insured, or paying for overlapping coverage when you didn’t plan to do so.
Some people are successful in business because they get lucky. More people are successful because they plan for success. A good business team, all working together can help you put together a plan that fits your business, and is tailored to your goals.