In our last post, we looked briefly at some of the basic characteristics of several types of business entities available in the state of New York. The business entities we mentioned last time—sole proprietorships, partnerships and LLCs—are increasingly complicated to form and dissolve, respectively.
Corporations are the most complex business form available, not only because of the corporate business structure itself, but also because of the required paperwork and the laws and regulations governing these entities. Corporations do, of course, have certain benefits over other business types, but these benefits come with tradeoffs.
Corporations offer limited liability for shareholders, and the ability to raise capital through issuance of stock. Corporations, be default, are taxed as separate entities, which entails separate taxation of shareholders for dividends. There is also the option of “pass-through taxation,” which involves taxation of corporate profits through individual shareholders.
The process for business dissolution varies depending on the type of entity in question and the circumstances surrounding the dissolution. Not every business will need to file paperwork for dissolution with the state, though LLCs, corporations and some types of partnerships do. In any business dissolution, there are certain matters that have to addressed, such as notifying the IRS and creditors, paying off creditors, collecting on debts, selling and distributing assets, and various other matters. For businesses which have specified a process for dissolution, that process must be followed, whereas businesses that have not specified a process will fall back on the default rules of state law.
In pursuing business formation and dissolution, sound legal advice is critical to ensuring everything is done properly and at the right time. With the advice and guidance of experienced legal counsel in formation or dissolution, as the case may be, a business can be assured that there are no legal impediments to its future success or that dissolution goes as smoothly as possible.