Do you have an idea for your next business? Do you know where you’re going to  start transforming that idea into a business? Deciding on a business formation is one of the first and most vital steps to initiating a business in California. It can make a significant difference in terms of taxes, liability, profitability, growth, and even more. Getting it right from the very start is crucial.

The business formation attorneys at Law Mart have many years of experience in providing considered legal advice and comprehensive legal representation to California company founders, business owners, and business operators. Our business formation attorneys take the time to review your finances, your experience, the nature of your business, your investment opportunities, and help you review your options in order to set you up for long-term success. We will even walk you through every footstep when formulating your new company, from choosing a name and business structure, to obtaining financing, building out your startup documents, and filing with county, state, and federal offices in your area.

Our Business Formation Attorneys Are Ready to Help You

Our experience Business Formation Attorneys offers comprehensive legal advice and representation for entity formation in California. We’ll walk you through the steps necessary to form your business, which include:

• Choosing an entity type
• Choosing and registering your company name
• Drafting suitable foundational documents including articles of incorporation, bylaws, operating agreements, shareholder or partnership agreements, and employment contracts
• Registering with local, state, and federal agencies
• Setting up regulatory reporting compliance practices
• Reviewing and negotiating financing documents
• And much more

Determining Your Entity Type

One of the most vital steps in initiating your startup is choosing the appropriate type of business entity. There is no one accurate answer for all businesses; the best entity type for your business depends on several fundamentals, including the size of your business at the start, your expected level of investment, the number of business partners and investors at the start and in the near future, your expected growth rate, and other deliberations. It’s possible to transform your business from one structure to another down the line, but your starting entity will order around a number of elements for at least the near future.

The main driving factors for choosing an entity type are how the different structures can in essence affect liability and taxation of income. Depending on which structure you’re choosing, you’re going to be facing different rules concerning formation, ownership, transformation of ownership, dissolution, as well as owner liability and taxation. Generally speaking, you’ll be choosing between the following entity types:

• Sole Proprietorships. A sole proprietorship means you are the sole owner and operator of the business. Business income is taxed as personal income, and the owner is directly liable for business liabilities, meaning your personal assets can be attached to your business liabilities. There are next to no formal requirements for formation and operation, meaning it’s the easiest option for forming a business but also leaves the owner most vulnerable to liability. 
• General Partnerships. They much like sole proprietorships except with two or more owners. There are limited formalities, owners are taxed on their share of business profits (as opposed to the business paying business taxes), and the partners are directly liable for business debts and other liabilities. The partners can choose instead to form a Limited Liability Partnership (LLP), which offers protection from liability like a corporation but does carry additional formation and filing administrative requirements. LLPs are designed for certain professions such as law and accounting. A Limited Partnership (LP) has a combination of both general and limited partners, useful for when one partner is merely offering financing while the other partners actually run the business.
• Limited Liability Companies (LLCs). LLCs are a hybrid between a corporation and a partnership or sole-proprietorship entity. Income is taxed to the individual owners like a partnership or sole proprietor, but owners are protected by limited liability, like a corporate shareholder. LLCs carry additional filing requirements and other formalities for transferring ownership and other operations, but they are among the most flexible types of entities.
• Corporations (S-Corp or C-Corp). They are legal entities separate from the owners, investors, and managers. Business debts belong to the corporation. Large corporations are known as C-Corporations, with profits being taxed at the business level, while smaller companies can opt to file as S-Corporations and benefit from partnership-like taxation. Corporations offer many benefits, especially as the business grows larger, but they do carry significant formation, filing, operational, and other legal requirements.

What Factors Influence Business Formation in California

Here are some elements to consider when choosing the best structure for your business. 

Control

A crucial deciding factor when formulating your business is often the degree of control you want to retain over your business. This is most likely true where multiple owners are involved.

A sole proprietorship allows for the fullest control. As the only owner and operator, a sole proprietor can run their business how they want to. In comparison, corporations are answerable to shareholders who elect a board of directors to manage the organization’s day-to-day business. 

Liability

Your business structure also determines the extent of your personal liability for the liabilities, debts, and obligations of the business. There are a few structures that offer better protection against personal liability. Nevertheless, liability and control are usually directly proportional. The less your personal liability, the less control you typically exercise over the business. 

In the example of a sole proprietorship, the owner is personally responsible for the business’s liabilities and debts. Their personal assets may be utilized to satisfy the business’s debts. They can also be sued in relation to the business’s activities. 

In comparison, in a limited partnership, partners have a separate legal identity from that of the business and their personal liability is limited to their investment in the business.

Taxes

The structure of a business is determined by the applicable tax regime. Many business structures – sole proprietorships, partnerships, limited liability companies, and S corporations – are pass-through entities. This means the business doesn’t separately pay tax. Instead, the tax liability is passed to the owners who pay taxes on the business profits via their personal tax returns. 

Other forms of incorporation, like C corporations, are handled as separate entities from their owners and taxed according to the relevant corporate rate. 

Administration

The degree of administration of a business commonly becomes more inconvenient as the complexity of the business structure expands. 

Sole proprietorships and partnerships typically have the least complex documents, while corporations have strict reporting obligations and complex paperwork to file when formulating and running the business. 

Five Vital Ways a Attorney Can Help Your Business in California

A business attorney can advise you on a range of issues when forming a business. 

1. Selecting the Right Structure for Your Business

Selecting the right structure is the fundamental to building a strong foundation for your business and its future growth. An experienced business attorney can navigate you on the pros and cons of each structure available to you, relevant to your circumstances. 

This will help safeguard both your interests and your business’s interests in the future.

2. Industry-Specific Advice

A business attorney can give you advice specific to the industry in which you operate and the product or service you’re offering. This  may include assisting you with comprehension of the applicable regulations and any necessary licenses or permits. 

3. Drafting and Negotiating Legal Documents

Business formation usually involves the preparation of a range of documents, such as business registration papers, intellectual property registrations, and other commercial documents. A lawyer can assist you in accurately drafting these documents. 

A business attorney can draft legally binding contracts or negotiate the terms of a contract to benefit you and your business. These are essential to many aspects of running a business, for example, partnership agreements. 

4. Understanding Your Tax Obligations

Failing to properly comprend your tax obligations can become an outcome in significant tax liability down the track. Taxation is a complex arena,  engaging with a business attorney and a qualified accountant is the best way to ensure compliance is in place for your business. 

They can also advise you about what tax breaks, credits, and deductions are available based on your business structure and circumstances. 

5. Employment Law

If you hire employees, you must abide with a suite of employment laws and regulations. A business attorney can help you navigate these and draft effective employment contracts that protect both you and your employees. 

Termination especially can be a legal minefield, so reliable legal advice on this is essential. 

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