1. Who will manage the company?
This category considers the number of people involved in managing a company as well as their involvement. Organizational considerations are more important when there is more involvement in managing the company.
A sole proprietorship, which has one person running the company, is the best form of entity because the owner and manager have the same interest.
Different concerns arise when more than one person is involved in the operation of a business. Conflicts between principles, death, disability, or sale of all or a portion of shares, rights of first refusal, and other concerns can arise. Multiple parties can be represented by different attorneys.
2. What are my future plans?
Do you plan to bring in more people? These people will be equal partners or restricted partners. What amount of money or property were you able to invest in the creation of the company? Are you willing to be the last in charge of running the company? These are all questions that businessmen often forget to ask when they start a business. Once the business starts to grow, all these questions begin to impact it. Based on your answers, a general or limited partnership might be an option. A corporate structure may also be possible.
How fast is the company growing? Limit liability structures are more beneficial for slower growth. Corporations should be considered if one expects rapid growth. Why? Why?
3. Are you willing to take on the liability of the company?
This means that assets protection should be a priority and one should plan ahead. This is the main concern. Are there more potential liabilities for the company? These risks are greater than those of sole proprietorship and general partnerships. Instead, you should look at limited liability options like LLC or corporations (S or C).
4. Who will invest in the company’s future?
This is important as third-party investments or other entities can make management and operation more complicated. You should also expect future investments to come from the current owner, or from persons or entities outside. Family-owned businesses, for example, are less likely than unrelated individuals to start a company together to attract outside investment.
Considerations of borrowing in the future are also important. A major factor is the issue of liabilities and guarantees. Personal guarantees and liabilities can change depending on the company’s structure.
5. Do I want default statutory law to apply?
This question relates to the so-called fiduciary obligation and duty of loyalty. These duties can be shared by owners, co-owners and managers as well as shareholders. These duties can also impact the rights of the shareholders and the equity of rights. This issue should be discussed with your attorney.
