The beat . A blog by premiumbeat

February 3, 2014
Author:
Categories:
Industry

How to Pick the Right Structure for a Video Production Company

What business form does your new production company need to be? In this post we share the options!

So you want to start up a brand new production company. You have a great business idea, but what form is your company going to take?

If you don’t know the answer to that question than you need to get informed to protect yourself. In the following article we take a look at the various forms a new company can take and what liability each form holds for it’s owners  This isn’t sexy reading, but a good understanding of business forms can help prevent you from losing your business or worse, your personal assets.

Sole Proprietorship:

Description: A business that is owned and operated by one person who has total control over their business.

Who’s in charge: As an owner of a sole proprietorship you are the ultimate person in charge. You have total control of the companies assets and future.

What if I get sued: A sole proprietorship has unlimited personal liability which means if you get sued not only is your company liable for damages, so are you. This can be a very vulnerable spot to put yourself in because if you get sued you could not will only you lose your business, but you also run the risk of losing your house and personal assets too.

General Partnership

Description: A general partnership, much like a sole proprietorship, is two or more individuals who share equal control over the entire company.

Who’s in charge: In a general partnership control is split evenly among all the owners. This can lead to some problems when conflict arises. In many cases owners of a general partnership will have an agreement with a consultant who can serve as the swing vote when there is disagreement.

What if I get sued: All of the owners in a general partnership share joint unlimited personal liability, which they are equally personally responsible for any lawsuit that arises.

Corporation

Description: A corporation is a separate legal entity that exists apart from the owners. A corporation can be created by by filling out an application and submitting a fee. Get more details on starting a corporation here.

Who’s in charge: A corporation is a company that is divided into small bits called “stocks” Control of a corporation is determined by the people that hold the most stocks, stockholders. Control of a corporation is directly proportional to the number of stocks possessed.

If you were forming a new corporation you would purchase the initial stocks and have a 100% say in the operations of your company. However, corporations require many additional administrative obligations, causing them to be confusing to set up on your own. If you are interested in creating a corporation than proper legal counsel is highly recommended.

What if I get sued: If a corporation is sued the corporation is liable for damages and not the stockholders. In the eyes of the court a corporation is viewed as it’s own individual person.

Limited Partnership

Description: A limited partnership is similar to a general partnership in that there are still multiple owners, but different in that one or more owners will exercise control and one or more limited partners will serve more as passive investors. This can be appealing to a start-up business that is needing outside investment.

Who’s in charge: In a limited partnership there are two different kinds of owners: 1) The general partners who exercise joint control over the entire company and 2) the limited partners who serve as passive investors rather than owners.

What if I get sued?: If you get sued as a (1) general partner than you will assume unlimited personal and joint liability, meaning if your company gets sued you get sued. A (2) limited partner however only assumes limited personal liability.

Limited Liability Company (LLC)

Description: A Limited Liability Company is a company of “members” who own the company and “managers” who operate it. A member can be a manager themselves or they can appoint a manager to operate the company in their place. An LLC is increasingly more popular among start-up companies as it offers limited personal liability to help protect owners and investors.

Who’s in control: In an LLC the members share control of the company or appoint managers to control it for them.

What if I get sued?: If an LLC is sued there is only limited personal liability, much like a corporation. This means that an individual is not personally responsible if the company is sued.

Now What?

So now you know the different forms your new company can take, now what? Well, as with any important business decision you need to seek out good council. Ask owners of other similar business questions regarding what form they chose and why. Expert legal advice is also highly recommended (a wise investment up front).

If you are interested in learning more about how to establish a media startup we recommend The Portable MBA in Entrepreneurship by Bygrave and Zacharakis.

What type of business form does your company take? Do you have any legal advice for those starting their own business? Share in the comments below.

Need Royalty Free Tracks?

Browse our Exclusive Music Library

Related Posts:

Become a better editor!