When starting or expanding business operations, one of the most important decisions is the type of business entity to form. There are different ways to structure your business, each with its own initial and ongoing requirements. You need to make a strategic choice that allows you to have favorable tax treatment, liability protection and an operating agreement that works for your company, if appropriate.
At Sepahi Law Group APC, our attorneys can advise you on all aspects of corporate formation. We can explain your options for different business structures, advise you on which is right for your company and take care of the paperwork associated with starting your new enterprise.
Choosing a Corporate Structure
When forming your corporation, the choice on what type of entity to operate as will be based on many factors including:
- The number of co-owners and the involvement of each co-owner in day-to-day business operations.
- The extent of liability protection desired by owners.
- The current and future interest in taking the company public or providing easily marketable ownership interests
- The desired tax treatment for profits and losses
- Ability and willingness to complete annual filing paperwork as required by California law.
In addition to these factors, there may also be additional considerations relevant to your specific business operation. For example, some of our clients have benefitted from incorporating their business not under the laws of California, where the company has operations, but instead in other states with laws more protective of or favorable to their respective business interests.
With so many different considerations, it is essential to speak with an experienced corporation formation lawyer who has helped both start-ups and established companies to form the right type of business.
Options for Corporate Structures
When forming your business, there are multiple ways to operate that must be considered including:
- Partnerships: Partnerships are a simple type of business structure that allows for shared ownership but that does little to protect individual partners from legal liability. Profits and losses pass through to partners, but transferring ownership of shares can be difficult.
- Limited liability companies: Limited liability companies can provide more liability protection for people doing business, but also have more initial requirements for creating the corporate entity. In California, paperwork to form an LLC can include articles of organization and an application to register, among other required documents.
- S-corporations: S-corporations provide myriad benefits including the creation of a business as a separate legal entity from its owners. S-corporations allow for pass-through taxation for profits and losses in the same manner as partnerships provide, but also have many features similar to C-corps. There are restrictions and limitations on when an S-corp can be formed, including limits on who may own shares and how many different owners may have a piece of the company.
- C-corporations: Many large corporations, including publicly traded companies, are organized as C-corps. A company operated as a C-corporation provides liability protection for shareholders/owners. Selling shares of stock in a C-corporation can be simpler than for other types of business entities, and C-corporations are not subject to the same ownership limitations as S-corps. However, C-corporations do not allow for pass through taxation, and there is a risk of double taxation on corporate income earned and dividends or profits distributed to owners.
Getting Legal Help from our Corporate Formation Attorneys in San Diego
An experienced corporate formation lawyer at Sepahi Law Group APC can help you to select the right corporate structure for your business. Call today to learn more about how our corporate formation attorneys in San Diego can assist you in taking your business to the next level.