Whether you are considering starting a small business, or a large enterprise, it is very important to protect yourself, your family and your company by creating a "corporate shield," and forming a corporation, a limited liability company, or a limited partnership. The right incorporation form, including a suitable stockholder buy sell agreement, is the most basic building block of sound legal advice for corporate clients.
What kind of incorporation will suit you? Maryland recognizes regular corporations, and close corporations, which do not have boards of directors and are more suitable for a small business and a one or two-person enterprise. Both regular and close corporations can be a "C" corporation or a subchapter "S" corporation, which are designated for tax purposes. Tom Rand does not practice tax law and do not give tax advice; you should work with your accountant to decide the details appropriate to your small business or large enterprise. If you do not have an accountant, Tom Rand can help you find a good CPA. When an incorporation involves multiple shareholders or owners, a shareholders agreement should be an integral part of the initial legal project. The basic purpose of a shareholders agreement is to provide a simple, efficient mechanism to resolve ownership conflicts, and thereby avoid costly, bitter lawsuits with huge attorneys fees.
Limited Liability Companies (LLC)
Accountants often advise that an incorporation with the limited liability company form is best suited to a small business. An LLC is similar to a corporation; if more than one person is involved, it will require a detailed LLC operating agreement designed to prevent deadlocks and conflicts if problems arise between the owners of the limited liability company.
In some circumstances the limited partnership entity is preferred over a standard incorporation or limited liability company. Usually the general partner of a limited partnership should be a corporation, not an individual. Your accounting and tax adviser can tell you if a limited partnership is right for your business.