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Why a Business Entity Matters

Updated: Jun 6, 2023

Any construction professional or business owner with a few miles on their hard hat will be familiar with a business entity, but recognizing the significance of a business entity is not necessarily something that comes with time spent on the job site. Business entities function as a person independent of the business owner(s) and protect construction professionals’ personal assets from company liability — and the right entity can bring tax advantages and a host of other benefits along with it. Unless you plan to operate your business under your name and assume the liability that comes along with this strategy, you’ll need some form of entity to legally conduct business in Minnesota. However, not all business entities are created equal. Types of Business Entities There are four types of business entities: Limited Liability Companies (LLC), Partnerships, S Corporations, and C Corporations. Though these entity types may share some common benefits, each will present specific advantages to business owners — and understanding which entity type is right for you and your business is vital.

  • LLC: Provides protection with flexibility for small business owners

  • Partnership: Empowers growth with less risk to each partner

  • S Corporation: Prevents double-taxation of U.S. shareholders (capped at 100 shareholders)

  • C Corporation: Corporation pays flat tax-rate on profits, shareholders pay personal income tax on distributions of after-tax corporate profits, no restriction on number of shareholders

Why Have a Business Entity? The easy answer to this question is that, in the state of Minnesota, most individuals planning to conduct business under a name other than their own are legally required to register a business entity. Aside from this fact, there are several benefits of business entities which make them a valuable tool to Minnesota contractors. Ensure Proper Taxation One of the most important benefits of using the right business entity is the impact it can have on taxes. With the proper business entity, construction professionals can take advantage of tax incentives and limit the financial burden of business ownership. Depending on the size of the business, these savings can be significant — so be sure you’re taking advantage of every incentive at your disposal by opting for the proper entity. Cover Your Ass(ets) Fundamentally, the creation of a business entity is like creating a separate “person” from yourself to assume responsibility for business liabilities. Now, this doesn’t mean you’re off the hook entirely; construction professionals are still liable for any abuses and personal guarantees. Instead, it keeps the entity owner’s assets separate from the business to limit personal liability. This becomes especially important in the event that tax debt is accrued, as the government is only able to file a lien on business property. Define Terms of Partnership Be they in the form of partnership agreements (partnerships), operating agreements (LLCs), or bylaws and shareholder agreements (corporations), different types of business entities require different types of internal governance. These provisions can define terms of a partnership, but they can also outline responsibilities and determine organizational structure for all types of business entities. With the right entity, business owners can limit disputes and ensure that operations run as smoothly as possible. Enable (and Empower) Growth The construction industry is booming nationwide, and it’s more than likely that businesses launching this year (those capable of evolving and embracing new technologies, at least) may see significant growth over the next five years. Businesses looking to seize these growth opportunities will need support from the right business entity — as opting for the wrong entity may limit potential growth. With the right foresight from the entity’s foundation, however, construction businesses can avoid potential roadblocks and grow with confidence. Inspire Confidence Much like a contractor’s license, construction professionals can benefit from the air of professionalism that a business entity provides. While customers may not realize a business entity is required in most cases, they may see a construction company with “LLC” or another entity identifier tacked onto its name as being more legitimate as one without it. Looking for a tool which can help win business while protecting yours? You’ve found it in a business entity. Find the Right Entity for Your Business With MNCLS Despite the countless benefits of business entities, opting for the wrong type of entity for your business will do little to improve your situation. To make sure you choose the right business entity to protect and empower your livelihood, place your trust in attorneys, business owners, and former construction professionals who have been in your position — and call on the team at MNCLS.

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