Starting a Small Business in Florissant: Business Ownership Options and Legal Structures

As we continue our series on , we're back this week with a discussion on different types of business ownership options and tips on how to determine the legal structure of your business.

In case you’ve missed previous editions of our small business series, we have shared ideas for choosing a business concept, including the and . We’ve also discussed and given tips and ideas on ways to find .

is back this week sharing tips from both his personal experience and his clients’ experiences. Joining Shoaf this week is Chris Coleman, owner of FranNet, a company that helps would-be business owners choose and develop franchise businesses. FranNet's clients include several Florissant area business owners, Coleman said. Bob Russell, the City of Florissant’s director of economic development, also weighs in briefly.

Different Types of Business Ownership

Shoaf said there are several kinds of business ownership you should consider when opening your business in Florissant.

• Sole Owner—A single individual owns and operates a business. It’s the simplest form of organization, but also carries certain risks. While the owner gets to enjoy all profits, he must also endure all losses from the business—meaning a creditor could in theory collect on debts owed even from the owner’s personal property.
• General Partnership—Similar to sole ownership, a partnership is a business operated by two or more people with shared profit and management. Partners may also be personally liable for business expenses and legal concerns.
• Limited Partnership—Most popular in the '70s and '80s (prior to the invention of LLCs), a limited partnership means that one partner runs the business and assumes liability for operations, while another may invest money but not participate in regular operations of the business. The “limited” partner may also have limited liability. The LP exists and files taxes as a separate entity, and limited partners only become liable as a general partner if they take control of the business, but if a limited partner is a member of the board of directors, he or she is not considered to be controlling the business.
• Limited Liability Partnership (LLP)—A relatively new idea, some or all of the partners involved have limited liability, and one partner isn’t responsible or liable for the actions of the other. An LLP operates a lot like a limited partnership, except that partners’ personal assets can’t be liquidated, outside of the amount invested into the company.
• Limited Liability Company (LLC)—A very popular option for many small business owners, those who invest in the company form a corporate structure. Shareholders then have limited liability when it comes to the company’s actions and finances. An LLC is sort of a hybrid between a corporation and a partnership.   
• Corporation—Owners form a legal entity that is separate from themselves. The entity, or corporation, then has many of the same rights and responsibilities of an individual—it can enter into contracts, borrow or loan money, hire employees, be sued (and sue), own assets and pay taxes. Shareholders also have limited liability, so they can get profits through dividends and stock, but they can’t be held personally liable for any debts owned by the corporation.  
• Trust—Also called a common-law trust, this is an unincorporated business organizational structure that is created by a legal declaration of trust. It’s used in place of partnerships or a corporation, and differs from a corporation because it doesn’t have the rights of an individual. Trustees will have the legal title to any business assets, which are also transferrable. However, a business trust is considered a corporation for tax purposes.
• Association—A business organization that works to promote the interests of its shareholders/members.  Companies may associate in order to save money and time on certain business requirements, such as research, industry standards and more.

Advice from the Experts

Bob Russell said he advises small business owners to seek out an attorney or a certified public accountant for consultation before making the final decision on which type of structure you want for your business.

Coleman pointed out that each type of business ownership has its pros and cons.

“If you don’t want to reinvent the wheel and are willing to follow a system, a franchise may be something to consider,” Coleman said. “If partnering with a franchise is not your cup of tea, you may want to consider starting from scratch or looking into existing businesses. “

Coleman added that if you have the capital and would like a business that has “legs” to it already, purchasing an existing business might be an ideal option. 

“If you are looking for total control of the business, don’t mind going it alone, and are not interested in buying out an existing business, starting from scratch may be your best option,” he said.

Shoaf said that one of his companies, , was established initially in 1993 as a sole ownership. It later developed later into a LLC.  

“This has tax and legal consequences related to how you are taxed as well as liability concerns,” Shoaf said. “Our firm talks to you about each of the options if you are just getting started and will refer you to a trusted attorney for the final consultation.”

He said that if you’re struggling to decide which type of business ownership to choose, another local resource is attorney Jesse A. Granneman.

“He is a local attorney who has helped several business owners and can help you as well,” Shoaf said.

Coleman said that the Secretary of State’s website has good information that can help you get a feel for how you should legally structure your business.

“Getting professional CPAs or attorneys in your corner who have experience in the area you are looking will help you get it right from the start,” he said.

Shoaf advises his clients to think about where they want to be in the next five to 10 years and to consider their financial and managerial options with this perspective in mind.

Sole proprietorship and Limited Liability Corporations are two of the most simple to establish and maintain, he said.

He added that the type of business organization you choose will also affect your insurance needs.

“Make sure you contact a trusted insurance broker that can help customize your policy needs,” Shoaf said.  “This can save you money, time and let you sleep better at night.”

He said his companies use broker Shawn Waked at Practical Insurance Solutions.

“They have helped us with very unique insurance needs across four businesses,” Shoaf said.  “As with everything, you should have a second opinion on your insurance cost.”

Have you always dreamed of starting your own business? Subscribe to our daily newsletter so you won’t miss a single part of this ongoing series! Next week, we’ll discuss finding a business location in Florissant.

Do you own your own business in Florissant? We want to share your story with the community! Contact Patch reporter Angela Atkinson at angela.atkinson@patch.com to arrange for an interview.