Building a Strong Foundation Through Purposeful Entity Formation

When forming a new business, you need to decide what entity type it will be. Choosing wisely can be critical to getting your business off to a strong start.

At Daudi & Kroll, P.C., we are here to help you with this decision and the other major choices related to launching a new business endeavor. Based in Okemos and Canton, our entity formation attorneys provide Michigan entrepreneurs with personalized guidance and support. Let us help you start your business on a firm foundation.

The Basics of Partnerships

A partnership is an entity option for businesses with multiple owners (called partners). A partnership agreement can govern its operations. The individual partners are taxed, not the business itself.

The most basic kind of partnership is a general partnership. In this arrangement, all partners are liable for the business’s actions.

There can also be limited partnerships. In this structure, there are two types of partners: general and limited. General partners have the same responsibilities and liabilities as a general partnership. Limited partners, on the other hand, only contribute financially and enjoy limited liability.

Understanding Incorporation

A more complex entity choice is a corporation. The company’s articles of incorporation and bylaws govern it. It has a relatively strict management structure. Its owners (called shareholders) do not have liability for the business’s actions.

How a corporation is taxed depends on its type. In an S corporation, the individual shareholders are taxed, but the business isn’t. In a C corporation, the business is directly taxed, as are dividends paid to shareholders.

What to Know About LLCs

A limited liability company is a hybrid model that mixes elements of corporations and less complex entity types. Articles of organization and operating agreements can govern operations. Owners (often called members) have liability protection. An LLC has more flexibility in its management structure than a corporation. An LLC’s members are taxed individually, while the company as a whole is not.

Helping You Choose The Right Business Entity For Your Goals

The right one depends on your goals, liabilities and management preferences. Our firm helps clients create and maintain a wide range of business entities, including:

• Sole proprietorship: A sole proprietorship is the simplest structure, ideal for single-owner businesses. It requires minimal formalities, with the owner reporting business income on their personal tax return. However, the owner faces unlimited liability, meaning personal assets are at risk for business debts. Our team can assist with necessary registrations and guide you on how to protect your interests.
• Partnerships: Partnerships suit businesses with multiple owners. General partnerships involve shared liability among partners, while limited partnerships include general partners with full liability and limited partners with liability capped at their investment. A partnership agreement is crucial to define roles and responsibilities.
• Corporations: Corporations offer robust liability protection for shareholders and a structured management system. C corporations face double taxation–once at the business level and again on shareholder dividends. S corporations, however, pass income directly to shareholders, avoiding corporate-level taxes but with stricter eligibility rules. Our attorneys handle articles of incorporation, bylaws and compliance to set your corporation up for success.
• Professional Limited Liability Company (PLLC): A PLLC is designed for licensed professionals, such as doctors or lawyers, combining LLC flexibility with liability protection. Members are shielded from business debts but remain liable for professional malpractice. We assist with filing requirements and crafting operating agreements specific to your profession.
• Nonprofit entities: Nonprofits focus on public or community benefit rather than profit. They can apply for tax-exempt status, often as a 501(c)(3) organization, through the IRS. Our team navigates the complexities of forming nonprofits, helping ensure compliance with state and federal regulations.
• Foreign LLC: For U.S.-based businesses expanding internationally, a foreign LLC allows operation in another state or country while maintaining your domestic structure. We handle registrations and compliance to support your global ambitions.

Rely on us to streamline entity formation. While some steps may seem manageable alone, our guidance helps ensure accuracy and compliance, saving you time and risk.

Guiding You Through Entity Formation

Our team is ready to support you at every step of entity formation. We can:

• Help you understand your entity options
• Help you determine the right entity type for your business
• Guide you through registration
• Help you create governing documents
• Assist with all other aspects of getting your chosen entity type in place

Our lawyers can also help you navigate other commercial law issues connected to starting your business.

Forming A Nonprofit Organization

Starting a nonprofit organization requires a proper legal structure and filings that support long-term compliance. Before seeking federal tax-exempt status, the organization must first be set up in an acceptable legal form. The IRS states that an organization must be organized as a trust, corporation or as an unincorporated association before it can be recognized as exempt from federal income tax under Section 501(a). The needs of your nonprofit will typically guide which organization you choose.

A strong formation process usually begins with identifying the organization’s purpose. The mission statement should explain who the organization serves, what problem it addresses and how its programs will support that purpose.

This step matters because the organization’s governing documents should all align with the same mission. This process may include:

• Choosing the legal structure: Many nonprofits are formed as corporations, but the correct structure depends on the organization’s goals and legal needs.
• Preparing governing documents: Articles of incorporation, bylaws and conflict-of-interest policies help define how the organization will operate.
• Establishing leadership: A board of directors or similar governing body should be selected with clear roles and voting procedures.
• Applying for an EIN: The organization requires an employer identification number (EIN) for banking, tax filings and federal applications.
• Seeking tax-exempt status: If the organization qualifies, it may apply to the IRS for recognition as a tax-exempt entity.
• Planning for compliance: Nonprofits may have annual filings, charitable registration duties, recordkeeping obligations and governance requirements.

Our law firm can help new nonprofit organizations move through these steps with a practical legal plan. We can assist with:

• Forming the entity
• Drafting or reviewing the mission statement
• Preparing internal governance documents
• Helping leadership understand their duties
• Preparing the tax-exempt status application and supporting materials that demonstrate the organization is organized and operated for a qualifying purpose
• Filing the correct documents with the correct authorities

However, managing nonprofits does not end with registration. Nonprofits also have annual filing requirements on the federal and state levels to ensure your nonprofit retains its tax-exempt status.

Existing nonprofit organizations may also need help with:

• Updating bylaws
• Correcting governance issues
• Reviewing board procedures
• Addressing compliance gaps
• Responding to operational changes
• Navigating program expansions, leadership changes, restricted donations, and future reporting duties

Whether you are starting a new charitable organization or strengthening an existing one, our attorneys can help you build and maintain a nonprofit that supports your mission while reducing avoidable legal and compliance problems.

Start Your Business with Confidence

Turn to our knowledgeable team for trusted answers and guidance on entity formation.

Connect with us today via email. You may also reach us by phone at 517-306-4538 or 734-249-6310.