BUSINESS ENTITY FORMATION

Starting a business is a way of fulfilling your life’s purpose. Whether you’re looking to form a startup or restructure an existing company, you probably spend much of your time envisioning your goals for the future. You have a vision, but you also need a legal plan that gives you the freedom to achieve your highest mission. It is wise to decrease your exposure to liability and to limit your tax burden so you can afford to allocate more resources to your true objectives. No matter the size or age of your organization, there is a type of formation that is right for you.

INDEPENDENT LEGAL STRUCTURES

C corporations, S corporations and limited liability companies (LLCs) are all considered independent legal structures. They prevent you from being held personally liable for legal actions taken against the company and separate your personal assets from your business debt. There are also no limits to the number of shareholders in any of these entities. However, C corporations are unique in that they are taxed on corporate profits and shareholder dividends rather than directly through their owners. The owners of S corporations and LLCs must report their shares of profit and loss in the company on their personal tax returns. C and S corporations must also hold annual meetings and record their lengths, while LLCs are not required to do so.

TYPES NOT CONSIDERED INDEPENDENT STRUCTURES

Partnerships, joint ventures and sole proprietorships are not classified as structures separate from their owners. The owners of these entities remain personally liable for lawsuits filed against the business. Additionally, owners must report their shares of profit and loss in the company on their personal tax returns. There is no true distinction between personal assets and business debt. These structures typically do not require state filing and are easy to form and operate. The owners of these entities are also not mandated to hold annual meetings. Therefore, partnerships, joint ventures and sole proprietorships are good options for those seeking a high degree of flexibility. 

WHAT TO DO BEFORE STARTING A BUSINESS

Deciding what type of business entity to form is merely one piece of the puzzle. There are several tasks every organization must do, ideally before they ever begin operation. Below is a list of duties that you should check off with a trusted attorney before doing anything else.

1. Obtain a business license.

2. Get an employer tax ID.

3. File sales and transaction privilege tax reports.

4. Protect your trademark or trade name and finalize any patents.

5. Purchase worker’s compensation insurance.

6. Create an operating agreement that governs the rights, obligations and responsibilities of every employee in your organization.

7. If under ownership by two or more people, outline procedures for how you and your partners should sell interests to one another should you decide to part ways down the line.

PROTECTING YOURSELF AND YOUR COMPANY

Although some of the above tasks appear simple, they can place you and your business at great risk if they are not carefully implemented. I have been an attorney in the Chula Vista area since 1977, and I have seen numerous businesses get into trouble that could have been easily avoided with conscientious planning. It is important to have an experienced professional on your side when creating something as precious as your vision for the future.

Furthermore, many find it helpful to form a relationship with a trusted attorney early in their company’s lifespan. You will inevitably need to seek legal counsel as your business grows and encounters expanding needs, and it is most effective to gain this insight from an attorney who knows you and your business and has taken the time to understand your mission. Throughout my extensive career in business entity formation, I have developed a keen ability to tap into my clients’ aspirations and help bring them to fruition. I am always excited to see my clients grow, and I’d love to be a catalyst in your professional evolution.