Your Biggest Questions About Business Formation, Answered

Launching a new business is both an exciting and somewhat stressful endeavor. As you start making your dream a reality, you will need to make several weighty decisions to ensure the business enjoys a stable and successful foundation. Whether you are just starting to explore the ins and outs of business formation or you have a specific question about the process, enlisting the guidance of an experienced and knowledgeable business attorney can give you the support you need to make informed choices with confidence. This post will address some of the most common questions about business formation and encourage you to seek the assistance of a dedicated business lawyer to discuss your most strategic path forward.

What is a Business Legal Structure?

When you form a small business, you will need to choose a legal structure, also known as a business entity, that regulates many of the aspects of your business. The legal structure of your business determines your federal tax burden, and it carries liability ramifications at the state level. Each business entity has its own implications for taxes, liability, paperwork, hierarchy, registration requirements, and fundraising protocols. As you explore your business entity options, consider discussing your specific needs and goals with your business attorney to identify the legal structure that will best support your goals.

How Do I Decide Which Legal Structure is Best?

The most common legal structures for small businesses are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Below is a brief overview of each business structure to help you understand the benefits and potential limitations of each one.

Sole Proprietorship

The most straightforward of business structures is the sole proprietorship. Essentially, you are the only person responsible for your company’s profits and debt obligations. Although sole proprietorships offer advantages like an easy setup, low cost, tax deduction benefits, and relatively simple exit, sole proprietors do not enjoy the separation or protection of personal and professional assets. For instance, you may find yourself personally liable if your business grows or a legal matter arises. Discuss the advantages and disadvantages of forming a sole proprietorship with your business lawyer to learn more.


In a general partnership, two or more individuals share the business equally. In a limited partnership, one partner usually has control of operations while the other (or others) contribute to and receive a portion of the profits. Partnerships may operate either as sole proprietorships or limited liability partnerships, depending on your unique needs. Those wanting to work with a trusted family member or friend to make joint decisions and share the business’s profits and losses may find success through a partnership. If you decide to move forward with establishing a partnership, you should take the time to draft and review a comprehensive business partnership agreement that articulates the roles and responsibilities of each individual, minimizing the potential for costly legal disputes later on.

Limited Liability Company (LLC)

One significant advantage of forming a limited liability company (LLC) is that it allows owners, partners, or stakeholders to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership. An LLC shields partners from personal liability for the business’s debts as long as they acted in good faith and did not act in a negligent or wrongful manner. If you are interested in learning more about whether forming an LLC is your best option, reach out to your business law attorney to get started.


Essentially, the law recognizes a corporation as a separate entity from its owners. A corporation enjoys several legal rights independent of those who run the business; for example, a corporation may sue, be sued, own or sell property, and sell the rights of ownership in the form of stocks. There are several types of corporations, such as C corporations, S corporations, B corporations, closed corporations, and nonprofit corporations. Discussing these options with your business attorney is the best way to determine whether a corporation is your best option for structuring your business.

Do I Need an Attorney to Start a New Business?

Although there is no legal requirement to work with a business lawyer to launch a new company or business endeavor, doing so is highly recommended. Working with a knowledgeable business attorney allows you to put the necessary protections in place to minimize the potential for future legal disputes and ensures that you and your business enjoy a bright and stable future. Your attorney will answer your questions and address your concerns at each stage of the business formation process, empowering you to move forward with greater certainty, clarity, and confidence.


If you’re forming a new business and looking for trusted and effective legal guidance, call Judex Law, LLC at (303) 523-4022 to get started.

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