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What are the challenges of business formation in Louisiana?

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Amanda Butler - Business/Corporate - Super Lawyers

Answered by: Amanda Butler

Located in New Orleans, LABusiness Law Group

New Orleans, LA
Phone: 504-319-4528

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Unfortunately, even if you have a great idea for a business that fills a consumer or corporate need, there are several steps that must be completed well in advance of bringing your vision to life. Challenging elements such as entity selection, drafting operational bylaws and creating corporate documents can quickly derail developing a business. 

While numerous things can be completed on your own, an experienced business law attorney can provide exceptional guidance on even the most complex questions that you have. Firms typically have experience in various areas such as advising startups, forming nonprofit entities or acquiring an employer identification number (EIN) from the IRS. Instructions might often seem straightforward, but a Louisiana business law attorney can ensure you don’t miss any critical steps or make the process unnecessarily hard for yourself. 

What are operating agreements?

Whether there is more than one party, or you are acting alone in the business, creating an operational document is critical to the future stability of your organization. As a legally binding contract, an operating agreement serves to express various guidelines that the business must follow. Essentially, the document is a set of rules that govern the structure of the organization, the working relationships between co-owners and financial responsibilities. Additionally, the operating agreement can lay out various percentages of ownership, shares of profits and losses and partnership dissolution. 

Many partners elect to proceed with verbal agreements and various handwritten notes. It’s critical that you memorialize the agreement in operating documents. If you have a corporation, you need to have the appropriate bylaws to prevent future trouble including tax issues and legal disputes. 

While nearly anything can be included in an operating agreement, common elements can include: 

  • Establishment of voting powers
  • Allocation of profits and losses
  • Percentage interest among stakeholders
  • Rules for holding meetings
  • Rules for taking votes
  • Buyout provisions when a member decides to leave 

Is getting an occupational license important?

Getting an occupational license is a step in the business formation process that a lot of people miss. They will often set up the limited liability corporation (LLC) and decide to work out of their home. Their understanding of the Louisiana business formation process can be confusing — since they don’t have a physical location, they don’t feel that an occupational license is necessary. 

Unfortunately, a misstep at this stage can have serious consequences down the line. Without an occupational license, you could be subject to fines, being found in violation of operating a business in an area you’re not allowed to operate in. Additionally, if you apply for any sort of city work in the future and you don’t have the proper licenses in place, it would be prohibitive. 

Tax implications

Unfortunately, it is not uncommon for CPAs to get some business formation wrong when advising clients. It is wise to discuss your concerns with a business law attorney who can guide you through the process with an eye toward many of the pitfalls you might face. 

The tax implications of your business entity, for example, must be carefully examined. We won’t get into any great detail here because all situations are unique to their defining characteristics. However, it is important to remember that each entity selection carries varying levels of tax liability. There are things you can do to insulate yourself and your private assets, and your chosen business lawyer can guide you from start to finish. 

Business formation in Louisiana can be a complex process filled with distractions, wrong-turns and pitfalls. Doing plenty of research and looking to an experienced attorney for guidance are ways you can lessen your stress. Whether this is your first business or your fifth, it is important to have your questions answered by a skilled professional.

Disclaimer: The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.

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