Whether you’re interested in creating a limited liability partnership or are eager to operate a company on your own, establishing a business in Missouri can be exciting. However, the Missouri business formation process can be complex.
When you’re building a company, it helps to start with a solid grasp of the legal hurdles you may face. Let’s take a closer look at Missouri business formation laws and how to avoid mistakes.
Overview: The Four Basic Entity Choices
Before you can get your business up and running, you need to decide how to legally structure it. Business structure options vary somewhat by state. In Missouri, you have four primary options:
- Sole proprietorship
- Partnership
- Limited liability company (LLC)
- Corporation
Depending on your industry, the exact nature of your business, and your goals, one may stand out as the best structure. Here’s a brief rundown of how each one works:
Sole Proprietorship
When you start a business on your own, this is the default. Even if you haven’t registered your company or drafted formation documents, you still have a sole proprietorship. This is an easy option, but it has no liability protection.
Partnership
A partnership is like a sole proprietorship owned by multiple people. However, it carries even more possible liabilities. If someone sues the business, the partners’ personal assets might be at risk. Partners are all held liable for the company’s debts. That means if one partner executes a bad contract without the others’ consent, all partners are still responsible.
Limited Liability Company (LLC)
An LLC helps solve many of the liability concerns that come with sole proprietorships and partnerships. When you have limited liability status, your business is a separate legal entity. In the event of a business lawsuit, your assets will be protected.
You can start an LLC alone or with other people. Even if you’re going into business for yourself, writing an LLC operating agreement is highly recommended.
Corporation
In the realm of Missouri business entity formation, establishing your business as a corporation is the most involved option. Missouri law requires professional corporations to have licensed shareholders. Close corporations may operate without a board of directors.
Creating a Missouri corporation takes a lot of time, effort, and paperwork. However, for any business owner who intends to go public, establishing a corporation is usually a prerequisite for attracting investors.
What Legal Mistakes Can Create Problems When Forming a Missouri Business?
The process of business formation in Missouri isn’t something you should take lightly. Even a seemingly simple mistake can cause a cascade of legal issues down the line. This rundown can give you a general idea of some of the most potentially damaging legal mistakes:
- Choosing the wrong management structure
- Using generic or copied formation documents
- Failing to separate personal and business assets
- Forgetting about regulatory compliance
- Failing to plan for taxes, licensing, and employment law
In general, it’s a good idea to consult a business attorney instead of trying to wade through the complexities of Missouri business registration laws alone.
How Should Missouri Business Owners Evaluate Their Entity Choice?
When it comes to business formation in Missouri, laws can be complex. There’s no singular way to determine whether a given structure is right for you, but the following may be a roadmap to help you make your selection:
- Taxes: LLCs, sole proprietorships, and partnerships are pass-through entities that avoid double taxation
- Liability Protection: Missouri LLCs and corporations reduce personal liability by separating business and personal assets
- Administration: Professional corporations have to follow stringent administrative processes; sole proprietorships, partnerships, and LLCs are much more flexible
- Funding and Growth: Typically, you’ll need to establish your business as a corporation if you want to attract investors
Some business owners find they’ve misunderstood Missouri business registration requirements after they’ve created their company. Fortunately, your choice of business entity isn’t usually set in stone. For instance, if you start as a general partnership and decide you’d rather lessen your liability exposure, you might choose to re-establish the business as an LLC.
What Should Missouri Businesses Get Right in Their Formation Documents?
Of all Missouri business formation requirements, having the right documents is one of the most important. The exact documents needed will depend on your company’s structure.
For instance, if you have a limited liability company, you must file your articles of organization with the Missouri Secretary of State. If you’re forming a corporation, you’ll need to file articles of incorporation.
Don’t rely on templates or one-size-fits-all articles of organization or other forms. The paperwork you file with the Missouri Secretary of State is, in a sense, the backbone of your company.
A critical (but often overlooked) piece of filing articles of organization or incorporation is naming your registered agent. Your Missouri registered agent is someone who will receive important legal documents on your company’s behalf.
If you have a sole proprietorship or partnership, Missouri corporation formation laws don’t require you to file anything with the Missouri Secretary of State. However, it’s wise to draft and keep an operating agreement so you can clarify how the company will be run from day to day.
Why Is It Important to Separate Business and Personal Affairs?
Starting a Missouri LLC or corporation helps to create a clear boundary between your personal and business assets. But why go to the trouble of registering a limited liability company?
If your personal assets and business assets aren’t separated, you may face personal liability for business errors. This means that if someone files a lawsuit against your business, there’s a risk of your personal money and property being seized by the court.
Missouri LLC formation laws let you establish a limited liability company as a separate entity. However, to keep your liability protection, you’ll need to be careful about asset separation, too. Maintaining a separate business bank account is one example.
If you don’t take steps to establish the business as a distinct entity, you run the risk of “piercing the corporate veil.” When this happens, a court may strip the business of its LLC status.
What Missouri Compliance Issues Can Be Overlooked After Formation?
Knowing and adhering to Missouri business formation laws is one thing. But once your business is established, you’re also responsible for ongoing regulatory compliance.
If you have employees, you must maintain required workplace records and comply with wage and hour regulations. Business owners who haven’t hired anyone before often overlook these regulations.
Additionally, many companies forget to maintain a registered agent with an accurate physical address. In some instances, this failure could lead to the court dissolving your company.
What Licensing, Tax, and Employment Issues Should Be Addressed Early?
When thinking about legal requirements for starting a business in Missouri, many people don’t immediately jump to tax and licensing issues. However, if you fail to address these issues right away, you may face problems down the line.
You will need a federal employer identification number (EIN) to file taxes. The Internal Revenue Service (IRS) makes it easy to quickly get an EIN for free online.
You need an EIN even if you aren’t hiring employees. If you do plan on hiring, you’ll need to register for both workers’ compensation insurance and unemployment insurance. And if you plan on selling goods, you’ll need a sales tax license.
When it comes to starting a business in Missouri, legal requirements don’t always include licensing. There’s no single statewide business license, but certain fields may require licensure.
What Are the Most Common First-Year Mistakes Missouri Business Owners Make?
When you’re learning how to form a business in Missouri while actively doing so, making at least a few mistakes is expected. However, when you’re aware of common errors like these, you may be able to avoid them:
- Failing to apply for a license to collect Missouri sales tax (if needed)
- Forgetting to look into local city and county regulations
- Launching a company (especially a limited liability partnership or other business with multiple founders) without an operating agreement
- Forgetting to file annual reports
- Failing to pay taxes (and especially failing to pay quarterly estimated taxes to the Internal Revenue Service)
- Not organizing financial records or receipts before it’s time to file taxes
Mixing personal and business finances is another common mistake. If you start a Missouri limited liability company or corporation, you should never mix funds in the business bank account with your personal funds.
When Should a Missouri Business Owner Seek Legal Advice About Formation or Compliance?
Even a relatively mild breach of Missouri business formation laws may lead to major financial and legal fallout. To get your company started on the right foot, it’s often wise to seek legal guidance when creating a new business entity.
During the formation phase, your lawyer will likely help you understand key rules and regulations as outlined in the Missouri Statutes. If there’s a major change in regulations, seeking additional legal guidance is prudent.
Looking for Assistance With the Missouri Business Formation Process?
Navigating Missouri business entity laws isn’t just a challenge during formation. Depending on the structure you choose, you might be obligated to file annual reports, pay business taxes, and otherwise stay abreast of regulations and responsibilities.
The right legal assistance may help you avoid costly mistakes that harm your company’s reputation. The Law Office of David S. Schleiffarth, LLC, is committed to serving the needs of Missouri business owners.
Whether you’ve owned companies for years or are just starting out, we’re here for you. Get in touch to schedule a consultation today.
