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Dispelling Business Formation Myths

Clark Law Firm PC March 8, 2022

Young Attractive People Discussing BusinessIf you’re starting a business for the first time, you know how overwhelming the whole process can be. It’s an exciting yet stressful time as you try to navigate all the steps it takes to make your dream a reality. You may find yourself confused along the road because you’ve heard contradictory information about forming a business. Yes, starting a new business from scratch is a lot of work but it’s not impossible, and a good way to start is by dispelling some common myths that are floating around. If you’re in Birmingham, Alabama, or anywhere throughout Alabama and the Florida Panhandle, and have questions about business formation or other legal concerns, call Clark Law Firm PC today to set up an appointment.

Five Myths About Business Formation

Myth 1: Choosing a business entity is only important for large businesses.

Wrong. Even if you’re starting a solely-owned business, the entity you choose may have substantial implications on its future performance, taxation, and your personal liability. In general, you have four choices when setting up your business: sole proprietorship, partnership, limited liability company (LLC), or corporation. Each structure has its own benefits, protections, and tax implications. Consulting with a certified public accountant (CPA) and a business attorney can help you understand your options and what will serve you best.

Myth 2: You must be a U.S. citizen to own an LLC.

No. If you aren’t a U.S. citizen, you still have every right to form a business here, and you can generally follow the same steps that a naturalized citizen would. Surprisingly, you don’t even have to be living in the U.S. to create an entity here, but if you want to legally work here, you will have to obtain a visa.

Myth 3: You won’t have to pay taxes if you form an LLC in another state.

Many people choose to set up their LLCs in another state to take advantage of lower fees or favorable taxes. Regardless of which state you do business in, you’ll have to follow state law which may require fees, additional paperwork, and expenses like sales tax, franchise tax, or property tax. Some laws also require that the members of an LLC pay personal income tax in the other states, even if the LLC isn’t registered there.

Myth 4: A sole proprietor can’t have employees.

Incorrect. Even as a sole proprietorship — the simplest business structure — you can still hire employees, and you have all the same responsibilities as any other employer. You must follow all state and federal laws before doing so, such as obtaining an Employer Identification Number (EIN) and filing all necessary employment forms for taxes. Furthermore, the wages you pay to your employees then become a business expense and can help lower your self-employment taxes.

Myth 5: You don’t need an attorney to help with the business formation.

Wrong. While you may not need an attorney to be with you every step of the way, anyone who is starting a business can benefit from consulting with an attorney well versed in business law and business contracts. The time and effort you put into your business right from the start will pay off in the end. There are too many opportunities for missteps along the way regarding tax implications, business formation filings, and complying with state and local laws. You need to have this figured out from the start so you can confidently run your business for years to come.

Legal Guidance You Can Trust

For trusted legal assistance in the Birmingham, Alabama area, contact Clark Law Firm PC to schedule an appointment. For over 15 years, John has been helping members of his community solve their business problems and gain the skills necessary for lasting success. The firm also serves those throughout Alabama and the Florida Panhandle.