Corporate Formation

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Choosing A Corporate Formation That Fits Your Needs

It seems like everyone has an LLC now days. There are many other options that may be right for you and your business. But where to begin?

You know you need something, but what  is that something? Finally, you will know the answer to those burning legal questions that have been keeping you up at night. Whether you are just starting out like an entrepreneur on fire or you are an established business looking to go next level, you will have an idea of some options you may have, and of course we are happy to answer any questions!

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Entity Formation

Whats this Entity thing? An entity is simply the type of business that you have set up. Just like there are different types of beer (IPA, Porter, Lager), there are different types of companies (Sole Proprietor, Partnerships, LLC’s, and Corporations). Why should you care? Well establishing the wrong entity can implicate serious corporate governance and tax issues down the road. We recommend not only speaking with a Business Attorney but also with your CPA. So what are the choices for you?

Sole Proprietor  * As a Sole Proprietor you are your business. This is the simplest and easiest way to get started! It is also the cheapest as you may likely have to fill out minimal paper work and tax implications (again, please consult with your CPA!).

Not dealing with the state and paying all of those fees sounds pretty great. But the big downside is that you get minimal legal protection if any. This means that there is no separation between your business assets and your personal assets and therefore, no protection.

Limited Liability Company (LLC) * It seems like everyone has an LLC now days. It may even be the trend amongst all your entrepreneurial friends! Many think they are so easy you can do one yourself. However before you jump onboard the LLC train, you need to assess whether an LLC is really right for you, talk with a qualified tax professional, and consult with a business attorney!

Before we look at the pro’s and con’s of an LLC, lets explain what they are (in non-legalese). An LLC is a legal structure for your business that provides the limited liability features of a corporation and the tax efficiencies and organizational flexibility of a partnership. The “owners” of an LLC are called “members.”

In California, the members can consist of an individual (one owner), two or more individuals, corporations or other LLCs. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. All profits and losses are “passed through” the business to each member of the LLC. Members report earnings and losses on their own federal tax returns, exactly like a sole proprietor or partners would (again it is vital you speak with your CPA or tax professional when tax time comes around and even before forming your chosen entity).

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Is an LLC Right For You?

Below is a short list of pro’s and con’s to forming an LLC. This list is not exhaustive and before making a decision you should consult with a qualified small business attorney.

Pros:

Limited Liability – Members are protected from personal liability for some actions of the LLC. This means that if the LLC incurs debt or is sued, members’ personal assets are usually exempt. However it’s called “limited” for a reason, members are not necessarily shielded from all wrongful acts.

Less Paperwork – An LLC’s operational ease is one of its greatest advantages. Compared to a corporation, there are far fewer formalities and smaller start-up costs.

Sharing of Profits – There are fewer restrictions on profit sharing within an LLC, as members distribute profits as they see fit. This leaves it up to the members to decide how to divide the pie.

Cons:

Costs – In California LLC’s are subject to an automatic $800 annual fee to the Franchise Tax board.

No Pro’s Allowed – A California LLC also cannot offer professional services, or services which require licenses, such as medical, legal, accounting, and other services.

There are many advantages to forming an LLC. However, this information is just a basic guide to understanding LLC’s as there are many options and ways you can organize your business to grow and succeed. In addition, although an LLC offers a lot of flexibility, another choice of organizational structure may be a better fit for you and your team.

Corporation * And finally we have the corporation. For most small businesses and entrepreneurs who decide they are going to go with a corporation as their choice of entity, they will most likely choose to go with the “S” corporation. There are also “C” corporations but those are typically for larger ventures. If you have an interest in forming a “C” corporation please contact us and we would be happy to discuss that with you.

The Corporate structure is more complicated than an LLC but can be a tax saver. Again, it is vitally important to talk with your CPA. f you are going to form a Corporation you should probably have an awesome CPA you trust and can work with fairly regularly.

In general, the corporation does not pay federal income taxes. Instead the corporation’s profits or losses are passed down to all of the shareholders who are part owners in a corporation. The shareholders then report the profits or losses on their own individual tax returns.

If you are an employee or perform a major service to the S-Corp, then you will likely receive a salary that will be subject to normal employment tax rates. This salary must be “reasonable” in comparison to your industry and your region. Any other money that you receive on top of your salary, is a profit and is likely subject to a much lower rate.

As you may have guessed, corporations have lots of rules, requirements and filings. The corporation must hold annual meetings and keep meeting minutes; it must file annual reports and file much more formation information filed with the state.

If you go with a Corporate structure you must make sure you comply with the annual requirements and more to keep your limited liability protection. Luckily, we have plans available to help keep you on track of your corporate formalities and will even come and hold your annual meetings and minutes for your corporation!

* Disclaimer: The above is solely legal information and is NOT intended to be taken or construed as legal advice. While some of the above information may be applicable in other jurisdictions it was written for businesses within California. The attorneys at Surf Side Law are practitioners licensed by the State of California, and the distribution of this legal information does NOT constitute an Attorney-Client Privilege.

Contracts

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We Speak Legalese for You

As a small business owner you run across or have to create contracts all the time. You could try and do all this yourself. However, this can be extremely time consuming and take away your focus from what really matters – running your business.

If you already have your own contracts, thats great! We will be happy to review them for you and make sure they are in tip top shape.

Let’s be honest, you can buy a form contract online – some of them are even quite good. However, you will still need to make substantial changes to them to have the contract tailored to the needs of your business. You can go this alone, but one small misstep can lead to a loss for your business, your business being forced to honor an unintended provision, or potentially even costly litigation. For a low fee, let us help give you some peace of mind.

Perhaps you need some new contracts. That’s why were here. We will help review, draft, and and find clever solutions to your contract needs.

We offer full service customized contracts such as:

  • Independent Contractor Agreements
  • Employment Agreements
  • Buy – Sell Agreements
  • Partnership Agreements
  • Operating Agreements
  • Confidentiality Agreements
  • Client Contracts
  • Customer Contracts
  • Website Terms Of Service
  • Website Disclaimers
  • Website Privacy Policy
  • And Much More!

What We Do

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    Services

  • Corporate Formation Packages
  • Contracts
  • Partnership Agreements
  • Buy-Sell Agreements
  • Corporate Governance
  • Non-Profit Formation
  • Board Building