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December 08, 2008

Starting a New Business? Business Formats

If you're forming a new business you may be wondering whether to incorporate or to form an LLC (Limited Liability Company) or just operate as a DBA (doing business as) where you select an assumed name, but continue to work as an individual or partnership doing business under that name. The choices are many, and what is right for someone else may not be okay for your business. So here are the facts and some opinions that may help point you in the right direction, because the business form is an important foundational element which may determine the success or failure of your enterprise.

The simplest form of business is the sole proprietorship or partnership. If you intend to operate under an assumed business name, then you must file the "dba certificate" with the county clerk in the county where your business is located. For a mere $25.00 filing fee the clerk will accept your certificate of doing business under an assumed name. You should obtain a certified copy of the certificate from the clerk for an additional $10.00. You must display the certificate prominently at your business in order to avoid criminal penalties, a misdemeanor crime which could involve jail time up to one year. (General Business Law section 130). The purpose of the certificate is to give notice to everyone who visits your business property of the name of the real legal owner. If someone were to be injured at your place of business, or if you have a dispute with a customer, the aggrieved party can bring a lawsuit against the legal owner without fear that he or she has the wrong defendant.

Besides being the least expensive and simplest business form, the sole proprietorship or partnership is also the easiest to terminate. You merely file a certificate of dissolution with the county clerk and the dba business is over. The agreement of the partners to discontinue business will terminate a partnership. Other terminating events are the death or personal bankruptcy of a partner.

Despite the simplicity of form, there are disadvantages to the sole proprietorship and partnership forms of business. As you can see above, since you and your partner(s) are personally responsible for all liabilities of the business, then your personal wealth is exposed to the risk of lawsuits. At the very least, you should purchase a business insurance policy with errors and omissions and personal and property damage injury liability coverage in adequate amounts, equal to or exceeding the value of your assets.

Another method of risk reduction is to incorporate or form a limited liability company for your business form. We will continue the discussion on business forms in my next article.

Thomas A. Steffan Cooke & Steffan, Attys.
13132 Main Street Alden, NY 14004