Small Business BC provides conventional advice about business structures. The advice is OK as far as it goes, however this is a complex area and any professional will need to dig a little deeper into the specifics of your situation.
ABOUT ACCOUNTING AND LEGAL ADVICE
Some Key Observations
- The first few years of operation are high risk and very fluid. Structures can be changed fairly easily if your business model changes or you suddenly have new structural requirements.
- The benefit of limited liability for shareholders of a corporation may not extend to directors…and you are likely a director if you’re a founder. (see Directors’ liabilities when things go wrong – ASIC Australia Securities & Investments Commission – below)
- If you’re trying to obtain bank financing you’ll likely have to provide personal guarantees.
- Partnership structures are easy to get into – however you will be saddled with a ‘prescribed’ partnership agreement if you don’t explicitly draft a partnership agreement.
- If there is more than one “founder” of your business you might consider forming a corporation and having a shareholders’ agreement.
DIRECTORS’ LIABILITIES WHEN THINGS GO WRONG
While this publication is from the Australia Securities & Investments Commission, there are likely similar issues in your jurisdiction – get professional legal advice if limited liability is a significant reason you’re opting for incorporation as a business structure.