Quit your job? Starting out on your own path? What Now?

by Bob Harris

When you take that first step as an entrepreneur, the last thing that you want is for trouble to come calling. How you keep trouble at bay is important.

​Trouble takes the form of tax liability, personal liability, trademark issues, and more – and they all need to be addressed. Canyons West Legal can help you identify the pitfalls of being your own boss, and put you on the path to entrepreneurial peace of mind.

The best first step is to form a business organization. Operating on your own? You can be a:

  • Sole Proprietor
  • Single Member LLC
  • Sub-chapter S corporation

Working with another? You can be a:

  • Partnership
  • Manager-managed LLC
  • Member-managed LLC
  • Sub-chapter S corporation

Working to create the next Big Thing? You can be a:

  • C corporation


If you are like most folks, small is a great way to start. The odds of any new small business waging an effective competitive war with Amazon is slim. Most likely, you may want to start off as a sole proprietor to quickly get things rolling. Here is what you need to be a sole proprietor:

  • Yourself, and no one else (working with another? – you are a partnership)
  • Your own name (operating as a sole proprietor under a business name? – you need to register your business name with the secretary of state as a “doing-business-as” or DBA)

That is the whole list of things that you have to consider, and now you can be off and running. However, the risk of loss in your sole proprietorship is all on you, and that means everything – your automobile, your home, your personal wealth. As a sole proprietor, when something goes wrong, you have pushed all your chips forward. But, you ask, what do I have to lose? Everything. Without a corporate entity, you stand to lose everything.


Here is what you need to be a partnership:

  • You and one other person who intend to associate to carry on as co-owners a business for profit
  • Share of the profits and the rights to manage the business
  • Register your partnership name with your secretary of state (where required)
  • Follow your state statutes in the operation of your partnership

Once your partnership is off and running, now the risk of loss is shared between the partners – personally. Now you both stand to lose everything. Consider setting up an LLC or an S corporation.


LLCs in their several variations are meant to shield you from the liabilities that your company incurs. These liabilities can include tax, tort, and trademark liabilities. There are several things that you either must or should do to form an LLC to shield yourself from the costs of things that go wrong:

  • Choose a business name (and do it carefully – you will most likely be stuck with your choice for a long time.)
  • Do an acronym check on your business name (there once was a group called Farmers Against Rail Trails)
  • Choose a form of LLC (single-member, member managed, or manager managed)
  • Contract with a registered agent to accept correspondence from your state and service of process from officers of the court
  • File the required formation document with your secretary of state
  • Create an operating agreement (these are the rules by which you will govern your LLC)
  • Create a minute book (this is the record of your governance of your LLC)
  • As you operate your business, keep the corporate activities separate from your personal activities (this keeps the officers of the court from piercing the corporate veil and defeating the purpose of the corporate form – limiting your personal liability)


S Corporations are stock corporations with a twist granted by the IRS – all income, losses, deductions, and credits pass through the corporation to the shareholders.

  • To be an S Corporation you must:
  • Be a domestic corporation
  • Have only individuals as shareholders (certain trusts and estates are allowed)
  • NOT have partnerships, C corporations, or non-resident aliens as shareholders
  • Have no more than 100 shareholders
  • Have only one class of stock (not have both common and preferred)
  • NOT be incorporated as a financial institution (but there are exceptions), insurance company, or a domestic international sales company

Please note that the IRS does not recognize an LLC per se. If you choose to be an LLC, it will be regarded as a separate entity by the IRS unless you elect how you wish to be classified.

Confused as to where to start your new adventure? Contact Bob at Canyons West Legal. He can get you started on the right road and get you the peace of mind that you need to concentrate on making your adventure a success.