Organizing Business Entities

Incorporating and Organizing a Business

Incorporating a business is a relatively easy and inexpensive process. It gets more complicated and more expensive as the number of owners increases.

It is critical in incorporating a business that will be owned by more than one person that there is an agreement initially, documented in writing, at least as to the following:

• What each owner will contribute to the business in money, services, etc.;
• What each owner will take out of the business (e.g., salary, profits, etc.);
• What happens if an owner dies or becomes disabled;
• What happens if an owner no longer wishes to be involved in the business; and
• Who will make what decisions for the business.

Again, it is critical that an understanding as to these essential elements of the business be documented in writing before the business begins operating.

Choosing a Limited Liability Entity

Limited liability entities (e.g., corporations, LLCs) offer a great advantage to business owners. If a business is formed as a limited liability company, its creditors cannot seize the business owner’s personal assets to satisfy the company’s debts. This contrasts with a business owner who fails to do business as a limited liability entity (e.g. sole proprietorship or partnership). In this case, creditors of the business may seize the business owner’s personal assets to satisfy the business’ debts.

In order for the owner of a limited liability entity to enjoy the benefit of limited liability, he must be careful to conduct his business as a limited liability entity. He must organize his business properly and notify persons dealing with the business that the business is being operated as a limited liability entity (e.g., specifying “Inc.” or “LLC” on business cards, stationary, and contracts). The business owner must also avoid commingling his personal money with the money of the limited liability entity.

In Louisiana, because an LLC rarely pays franchise taxes, an LLC is typically the limited liability entity of choice, although corporations and limited partnerships are sometimes used.

Converting the Business from a Corporation to an LLC

Because LLCs do not pay franchise taxes in Louisiana, an LLC is often the most appropriate form of limited liability entity with which to conduct business. Louisiana law allows a corporation to “convert” to an LLC through a simple filing with the Secretary of State.

Do you need a little assistance with organizing your business? Norman Business Law Center has the solution! Contact us today to schedule a consultation with one of our business attorneys or explore our website to see a full list of our services.

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