By RACHEL CREE SHERMAN

Inspiration is naturally first and foremost in the creation of a business, followed by creating a name, logo, business plan, team, funding and financial management.

The considerations in starting and maintaining a business are numerous. Many of these factors – especially structuring the business and protecting its ideas and assets – often call for assistance from an attorney.

Depending upon the nature of the business, there may be patents or copyrights involved to protect such issues as intellectual property, inventions or formulas; confidentiality; purchase, sale and other agreements; and trademarks to secure a business name or logo. All of these and more can be important considerations in protecting business creation and development.

Where financing is concerned, professionals are consulted in regard to the legal aspects of funding and personal guarantees of loans, areas where obligation is involved on behalf of the owner of a business. Contracts are another area where legality is involved, and business owners are sometimes advised to seek legal counsel when agreements with facilities and lease agreements are involved.

Under certain circumstances, there are rules that restrict the organization of a business and regulations governing registration of the business owner, as in the case of investment advisors and real estate agents who must register with the state of Vermont. It is in these and other cases that legal advice must first be sought, according to the Burlington firm of Peter Erly of Gravel and Shea, Attorneys at Law.

The structure of a business is of utmost importance for many reasons, not the least of which is protection of personal assets that can otherwise be subject to creditors or lawsuits. Business organization can save money in taxes and provide greater flexibility and more expansive interest from outside investors.

The process can require legal consultation and facilitation, as the structure of a business must be selected from among several options and the appropriate forms filed with the Vermont Secretary of State’s office.

Organizational structures for businesses include sole proprietorship; partnership; two types of incorporation (C or S); limited liability (LLC); or low-profit limited liability (L3C). These entities, as well as the acquisition of a business, a building or condominium purchase, a lease or rental agreement or any type of legal contract can necessitate seeking legal advice.

Though sole proprietorships and partnerships are the most simple and inexpensive of the business structures to create and operate, an owner is personally liable for business debts. S and C corporation owners have limited personal liability for business debts. S corporation entities can utilize corporate losses to offset other income and can save on employment taxes by taking distributions instead of salary. Fringe benefits are limited for shareholders. However, these are simple statements in a complex field.

If a partnership is the relegated entity, a legal document is advised for the protection of all concerned. The agreement must be specific and capture the important elements of that relationship. These include economics and shared rights; governance; voting rights; and rules regarding the sale of single interests in the business.

In Vermont, without a partnership agreement, the sale of any one interest in the company places the owners under default rules, Erly said. This can have an adverse effect on all of the parties involved and, ultimately, upon the life of the business itself.

A C corporation is the chosen designation for most large companies, and Erly suggests initially organizing a business as a C corporation if the owner has large growth as an objective.

C corporation status advantages include the ability to deduct fringe benefits as business expenses and splitting profits among the owners and the corporation, resulting in a lower overall tax rate.

The limited liability company (LLC) and the low-profit limited liability company L3C, the latter of which was signed into law just 1.5 years ago, are entities that allow limited liability for business debts. Profit and loss can thus be allocated differently than with other entities. The latter L3C designation involves the allocation of funds to nonprofit organizations.

Allen Webster of Lisman, Webster & Leckerling PC of Burlington pointed out some of the significant nuances of the differing entities and their corresponding tax laws. These differences emphasize the wisdom of seeking expert advice. Webster suggests retaining a tax attorney or a certified public accountant due to the number of choices and possible consequences that can result.

For instance, a single-member LLC is a disregarded entity for tax purposes. Liability protection is included, but an LLC is still taxed as a sole proprietorship on an individual’s tax return. If more than one member comprises the LLC, then the organization is taxed as a partnership or corporation.

Webster also cites a number of partnership alternatives such as general partnership, limited partnership, limited liability partnership and limited liability limited partnership, all of which differ in liability obligation.

These and a host of other aspects demonstrate the complexity of legal procedures involved in making just one decision when forming a business. Once instituted and underway, it can be wise to request review by an attorney to assure a smooth and successful operation.

Information is available in a workbook offered by SCORE, Counselors to America’s Small Business in Essex Junction, and its volunteers, one of whom, Ed Gallagher, retired member of Gallagher Flynn and Company, LLP, contributed information for this article.

Information is also available through a host of state and federal agencies and corporate and financial consultants throughout Vermont; some is available at no charge.