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“There are more than a dozen or so business structures in the United States,” says Shontavia Johnson, Esq, a Greenville, South Carolina–based intellectual property lawyer. Of these, she says, there are four types that are most popular: sole proprietorships, partnerships, corporations, and limited liability companies (or LLCs).
Sole proprietorships and partnerships are the easiest to start. While you must pay taxes on them and report to the IRS, they require no formal action to set up. “A sole proprietorship is when you as one person sell a product or service, and someone gives you money for that. A partnership is the same thing, it’s just that you’re in business with somebody else,” Johnson says.
The upside: the ease of entry. The downside: a greater liability risk. “If you start a business and you’re running up your personal credit cards, that debt is in your personal name,” Johnson says. “Further,” she warns, “if you are sued, you are going to be personally liable for paying the judgment.”
A corporation, on the other hand, is its own entity, separate from the individual or the individuals who started it. “They’re the most traditional way to incorporate and operate a business in the United States,” Johnson says. “It can be just you, or it can be a group of people including you, or even a group of other companies, or a combination of individual people and companies or other corporations — all acting as one single entity.”
You create a corporation by filing documents in your state called articles of incorporation. These are typically filed with the Secretary of State’s office. Then, you determine how you want to be taxed, how you will identify which type of corporation you want to operate: an S-Corp, a C-Corp, or a nonprofit. As each of these carries unique tax implications, Johnson recommends consulting with an accountant.
A limited liability company, or LLC, is a relatively new business structure. “They were created to give more flexibility to business owners,” Johnson points out. “LLCs are easier to form, like a sole proprietorship, but you get the personal liability protection and debt protection of a corporation.”
To form an LLC, you file articles of organization with the Secretary of State. If approved, you have a registered LLC in that state.
There is a drawback. “In the case of LLCs,” Johnson notes, “there are no shares of stock to issue.” Shares serve as an additional incentive when you are seeking investors, and without that incentive, it may be harder to secure those investments. “That can be a challenge if you’re planning on raising venture capital,” she says.
Sole proprietorships and partnerships are the easiest to start. While you must pay taxes on them and report to the IRS, they require no formal action to set up. “A sole proprietorship is when you as one person sell a product or service, and someone gives you money for that. A partnership is the same thing, it’s just that you’re in business with somebody else,” Johnson says.
The upside: the ease of entry. The downside: a greater liability risk. “If you start a business and you’re running up your personal credit cards, that debt is in your personal name,” Johnson says. “Further,” she warns, “if you are sued, you are going to be personally liable for paying the judgment.”
A corporation, on the other hand, is its own entity, separate from the individual or the individuals who started it. “They’re the most traditional way to incorporate and operate a business in the United States,” Johnson says. “It can be just you, or it can be a group of people including you, or even a group of other companies, or a combination of individual people and companies or other corporations — all acting as one single entity.”
You create a corporation by filing documents in your state called articles of incorporation. These are typically filed with the Secretary of State’s office. Then, you determine how you want to be taxed, how you will identify which type of corporation you want to operate: an S-Corp, a C-Corp, or a nonprofit. As each of these carries unique tax implications, Johnson recommends consulting with an accountant.
A limited liability company, or LLC, is a relatively new business structure. “They were created to give more flexibility to business owners,” Johnson points out. “LLCs are easier to form, like a sole proprietorship, but you get the personal liability protection and debt protection of a corporation.”
To form an LLC, you file articles of organization with the Secretary of State. If approved, you have a registered LLC in that state.
There is a drawback. “In the case of LLCs,” Johnson notes, “there are no shares of stock to issue.” Shares serve as an additional incentive when you are seeking investors, and without that incentive, it may be harder to secure those investments. “That can be a challenge if you’re planning on raising venture capital,” she says.
Intellectual property (IP) is another consideration you will want to explore early in your business planning. Here’s how Johnson breaks down the four main types:
“Trademarks protect words, phrases, color symbols, other designations, and some popular trademarks — trademarks are all around you,” Johnson says. “[They protect] those things in the capacity you have as a business owner, to distinguish yourself from your competitors in the marketplace.” Think logos and signature colors.
“Copyrights protect original works of authorship, fixed in a tangible medium,” Johnson says. “And all that legal mumbo jumbo means is that when you have a creative work, you may be able to protect it with a copyright if it's original, meaning you didn't copy it from anybody else.”
“Patents protect inventions, plain and simple,” Johnson explains. Patents generally focus on new technologies and prevent others from making commercial use of them. Patent protection currently lasts for 20 years.
“Trade secrets basically protect things that are not generally known to the public,” Johnson says. “A trade secret is valuable because nobody else knows how to make the thing or do the thing.” Some examples: Coca-Cola’s drink recipe, or Google’s search algorithms.
“Trademarks protect words, phrases, color symbols, other designations, and some popular trademarks — trademarks are all around you,” Johnson says. “[They protect] those things in the capacity you have as a business owner, to distinguish yourself from your competitors in the marketplace.” Think logos and signature colors.
“Copyrights protect original works of authorship, fixed in a tangible medium,” Johnson says. “And all that legal mumbo jumbo means is that when you have a creative work, you may be able to protect it with a copyright if it's original, meaning you didn't copy it from anybody else.”
“Patents protect inventions, plain and simple,” Johnson explains. Patents generally focus on new technologies and prevent others from making commercial use of them. Patent protection currently lasts for 20 years.
“Trade secrets basically protect things that are not generally known to the public,” Johnson says. “A trade secret is valuable because nobody else knows how to make the thing or do the thing.” Some examples: Coca-Cola’s drink recipe, or Google’s search algorithms.
IP can be especially treacherous when it comes to taking your brand to social media. Rosezena J. Pierce, Esq, a Chicago-based trademark attorney, witnessed this firsthand while working with her client Durrell Smylie, the effervescently enterprising star of the viral video that introduced us to the phrase “Where the money reside.”
Connected within hours of the video going viral, Pierce helped him to file a trademark application and reappropriate the domain name for the phrase he coined, avoiding the fate of many Black creators whose work goes uncredited and, ultimately, uncompensated.
“The worst thing that can happen is that you build this brand, you invest the time, you invest the money, and then someone else takes it and files the registration for it,” Pierce says.