If you’re starting up a small business in Oklahoma, it is important – for a number of reasons – to have the advice and guidance of an Oklahoma City business lawyer. Your lawyer will help you make the important decisions and will prepare the necessary legal paperwork on your behalf.
What is the right legal formation for you? If you are opening a small retail business or internet store, for example, should you form your business as a limited liability company (LLC) or as a sole proprietorship? What are the advantages and disadvantages of these two options?
If you’ll continue reading this short discussion of LLCs and sole proprietorships in Oklahoma, these answers will be provided, and you will also learn more about the advice and services that an Oklahoma City business attorney can offer as you start up and grow your business.
How Do Sole Proprietorships Work?
Many small businesses in Oklahoma and across the U.S. are sole proprietorships. Starting up a sole proprietorship requires less paperwork and fewer expenses than starting up any other type of business.
There is no legal separation between a sole proprietor’s business expenses and assets and his or her personal expenses and assets. If you own and operate your business alone, and if you have not established another legal business structure, your business is a sole proprietorship by default.
Proprietors are responsible personally for a proprietorship’s obligations and debts. Nevertheless, many freelancers and independent contractors choose to be sole proprietors, and for some business owners, that is genuinely the best option. It depends on the details of your business.
How Do Limited Liability Companies Work?
Limited liability companies require more legal paperwork, and starting up a limited liability company costs more than launching a sole proprietorship. Nevertheless, limited liability companies offer a number of long-term benefits that you should carefully consider.
An LLC is a legal business formation that shields the owner or owners from personal liability for the company’s debts and obligations. An LLC may have a single owner or multiple owners, and LLC owners are called “members.”
Unlike sole proprietorships, limited liability companies have a distinct legal identity that is separate from their owners. An owner’s personal assets are shielded if the limited liability company loses a lawsuit or cannot pay off its debts.
A single-member LLC is taxed like a sole proprietorship by default, but you may choose to have the LLC taxed as a C corporation or as an S corporation. This flexibility lets you choose the tax option that’s best for your particular business and circumstances.
When is an LLC the Right Business Structure Choice?
If you are starting up a new small business in Oklahoma, an LLC is the right business structure choice for you if:
- You want to shield personal assets from legal liability.
- You expect that the business will eventually have multiple owners.
- You want to qualify for any federal, state, or local tax benefits available to LLCs.
The tax benefits available to LLCs vary from state to state and also depend on the nature of your business. If you’re in Oklahoma, an Oklahoma City business lawyer can help you determine if forming your business as an LLC – or as a sole proprietorship – is the better option for you.
What Advantages Do LLCs Provide?
Transferring assets and properties to an LLC can be an effective asset protection strategy. Have an Oklahoma City asset protection lawyer help you document those transfers and explain their potential tax consequences.
As an LLC owner, you may choose to transfer personal property and assets to your limited liability company for either (or for both) of the following reasons:
- To provide your business with capital: Your contribution may be cash, personal property, real estate, or any combination of these, and you, in return, gain equity in the LLC.
- To shield you from liability as a property owner: An LLC will shield your personal assets if a lawsuit or a debt collection activity involves an investment or rental property.
How Do You Transfer Assets to an LLC?
Anyone who starts up a new business will probably invest a bit of his or her personal cash. You may also transfer personal items to the business: office equipment, vehicles, or tools, for instance. Here is how to document and record those transfers to a limited liability company:
- Establish the fair market value of the item transferred to the LLC.
- If it’s a personal asset transferred in return for equity, record the asset in the company’s operating agreement along with the fair market value, the purchase price, and the depreciation.
- If the LLC is buying the asset for cash, document the purchase in your accounting records.
- Make sure the titles of titled assets are properly transferred. You must have a lender’s consent, for example, if you transfer a vehicle that is not yet fully paid for.
- Ask an Oklahoma City business attorney to help you properly document asset and property transfers to the limited liability company.
What Else Should You Know About Starting a Business in Oklahoma?
A variety of factors must be considered when determining if a limited liability company or a sole proprietorship is the right legal structure for a new business: your financial circumstances, your tax situation, and your potential exposure to liability are only several of these factors.
As you launch your business, your attorney will ensure that the necessary fees are paid, forms are filed, and deadlines are satisfied. Your business lawyer will advise you about and assist you with contracts, protection of intellectual property, acquisitions and mergers, and succession planning.
If you currently own a sole proprietorship, establishing it as an LLC may be the step you should take, and it’s an option you should discuss with your business attorney.
What Other Services Will Your Business Attorney Provide?
As your business grows, and as laws change, an Oklahoma business lawyer can answer your questions, help you implement and update your business plan, and provide – if necessary – aggressive legal representation on your behalf.
Your attorney can also provide general counsel services and identify potential legal difficulties – and put solutions in place – before those issues develop into costly and time-consuming legal problems.
Good legal advice is essential to any successful business. To find out more, or to establish a sole proprietorship or a limited liability company in this state, before you take any other steps, schedule a consultation with an Oklahoma business attorney.