Whether you are just getting started or buying a company, choosing the appropriate business entity is a critical first step. Which type of entity works best for you will depend on a variety of factors, which you will want to discuss with an experienced business law attorney. In most cases, forming a business entity can limit or eliminate your personal liability for the company’s liabilities. There are also tax advantages in setting up certain types of legal entities. Other benefits can include: making it easier to obtain credit for your business, attracting a larger pool of investors, and reducing administrative burdens and costs. No matter what your objectives are, we can help!
The McCall Law Firm is here to assist you in determining what type of business entity best suits your needs.
Common Business Entities
- Sole Proprietorship. A sole proprietorship involves an individual doing business in his or her individual name. It is a simple and flexible form of doing business, but offers no protection to the individual with regard to their personal assets against business creditors. However, some of the potential negative effects can be mitigated by prudent estate planning and the creation of other entities to protect the owner’s personal assets.
- Partnership. A partnership is an agreement between two or more persons to share the profits and losses of a business enterprise. It is a flexible business form and can often provide protection of the partners’ personal assets against business creditors, if structured properly. A partnership may be either a General Partnership or a Limited Partnership, depending on the owners’ objectives. There are special considerations if the partnership is owned by professionals. In some instances, California law requires a Limited Liability Partnership or LLP to be formed.
- Corporation. A corporation, sometimes called a “C corporation”, is a formal type of business entity, created under the California Corporations Code, which protects its shareholders from the liability of business debts unless the shareholders personally guarantee such debts. However, corporate dividends are typically subject to unfavorable tax treatment. In addition, there are time and expense considerations in maintaining a corporation, which do not exist with some other business formations.
- Limited Liability Company. For many small businesses, this is the most attractive type of entity. Members, not shareholders, typically enjoy the same liability protection of a corporation, but do not encounter unfavorable tax treatment and some of the expenses and administrative burdens required of a corporation. For more information on LLC’s, see our related blog article here.
Businesses may end for a variety of reasons. In many cases, the decision to dissolve a business entity is voluntary and mutual. In other situations, businesses may be forced into dissolution because of external factors beyond the control of the owners, partners or stakeholders involved. Whatever the case, it is important to recognize that you do have some control over how the business ends.
Whatever the reason for the breakup, The McCall Law Firm can help you explore options and consider the ramifications of dissolving your business while protecting your interests inside and outside of the courtroom. We will work closely with you and collaboratively with each other to design strategies that will effectively shield you from the continuing liability associated with ongoing business activities and future disputes.