First Business Decision: What California Entity to Form?

Picture of new business openingPicture of new contractorsPicture of lot for new businessPicture of offices under new management

Corporation — S-Corp — LLC? — Fixed Fee Entity Legal Services

LLC vs INCChoosing the appropriate business entity (California Corporation, S-Corporation, or LLC) to form your business under is a first important business decision to consider. Hiring the right flat fee / fixed fee entity formation lawyer is critically important. While starting a new business, or finally making “an honest woman” out of your sole proprietorship is often fun and exciting, there are a lot of considerations to review, analyze and brainstorm with someone who can do “what ifs” with you.

What if you have significant growth? Do you want your tax preparation to remain simple, while significantly lessening the chances for and IRS audit? What –exactly– are you trying to accomplish?

Protect Your Personal Assets (Home, Cars, Cash, Etc.)

By setting up your business as a separate stand-alone entity – you will generally be able to shield your personal assets (home, vehicles, bank accounts, etc.) thus limiting liabilities to the business’s total assets. If the economy turns, someone files a lawsuit (warranted or frivolous) you stand a far better chance of keeping your personal assets protected. As a bonus, you will often have it easier getting business credit and attracting investors if that would be helpful. No matter what your objectives are, we are here to help by offering you practical and legal advice. Valerie offers Fixed-Fee Incorporation or LLC Entity Packages – keep reading…


Start Your Incorporation or LLC Today

We are experienced Orange County Business Formation Lawyers – experienced in assisting our clients in exploring the pros and cons of each entity as it relates to their exact and unique circumstances so that we, as a team can choose the best type of entity that makes the best sense for their business needs.Call an Experienced Business Formation Lawyer Today

Fixed Fee Entity Pricing

A special “fixed fee package” offered by Valerie L Kramer – Business Entity Formation, for me, is a lost leaded legal service. I charge $1,000. Sure, you can save a few hundred bucks at the paper mills or Legal Zoom, but you will not get the legal brainstorming session, the legal advice, and the practical legal coaching. All are paramount to setting up your business correctly, or calling a lawyer a year or five years from now with a lawsuit in hand or tax audit letter with no basis to fight back.

Let me share what is included and what is excluded in my $1,000 Flat Fee Entity Package for a typical Incorporation:

I charge a flat fee of $1,000.00 to set up your entity – plus any ‘out of pocket costs’ such as the filing fee for the Secretary of State, the cost for your corporate kit, etc. The corporate kits are approximately $100.00, which includes your corporate book, corporate seal, stock certificates, etc. The services which I include in the flat fee of $1,000.00 include preparing and filing your Articles, preparing your Bylaws, preparing your stock certificates, issuing the stock, filing any required notices pertaining to the stock issuance, preparing your Subchapter S election if desired, preparing your Subchapter S agreement if desired, preparing your Close Corporation Agreement if required, preparing your organizational meeting minutes, conducting our first meeting together, and generally making sure that you are ‘up and running’ for your first year and that you understand the basics of running your California corporation.”

Please note that the flat fee does not include any extra agreements or services such as shareholder buy/sell agreements, voting trust agreements, or intellectual property services (i.e., trademarks). Any such extra agreements or services would be charged on an hourly rate basis.

Ready to Incorporate?
Call now for a FREE telephone consultation.
Valerie will take your call personally!
CALL: (888) 866-3620

Sanctuary for “Walking Wounded” who Started Company using Legal Zoom

Do you have any clue as to how many victims there are who —attempting to save a few hundred dollars — set up their new business using a Paper Mill Operation such a Legal Zoom without getting legal advice? They call with depressing stories, lawsuits that should have easily been brushed aside, but are now a serious treat to taking down their business, their home, their life-long assets!

Legal Zoom and other paper mills are no substitute – for setting up your business –your dream— correctly. It is like building a new $500,000 home on cinder blocks instead of a legitimate, solid, and legal reinforced-concrete foundation. Yes, it will cost a little more, but a new business (or a small sole proprietorship going mainstream) must be set up carefully and then MANAGED precisely so that any protections that the entity afford you are not unwittingly relinquished by inaction, not following through on all the requirements that you MUST do to keep the protections and tax advantages valid.

Setting up a new business entity is, in many ways, more serious – than getting married. If you choose the wrong entity, or then manage the entity incorrectly, you can end up broke, in debt, all your assets taken away by strangers, and your dream forever dashed on the rocks. These are the CALLS that Business Attorneys receive every year. It is so tragic and totally avoidable… If only you had sat down with an experiences Business Entity Attorney who will teach you as part of your entity formation how to care for your state-sanctioned & regulated legal entity.

penny poundEven if you do choose the proper entity, within just months – your state-regulated entity could lose its power to protect you because no one ever taught you all the ongoing steps you MUST make to have your entity remain in good standing with the State, and the State and Federal Taxing Agencies. Miss a seemingly harmless filing, fail to have or document a required meeting and a frivolous lawsuit (that would normally easily be rebuffed) can now conceivably seize all of your business assets, and then reach right through your worthless ‘corporate veil’ and potential snatch a personal bank account, your personal vehicles, or even your family home.

It just isn’t worth saving a few bucks by scrimping on setting up your business with some proper legal counsel!


WILL A CORPORATION PROTECT ME?

THE DEVIL IS IN THE DETAILS – By Valerie L. Kramer

You’ve probably heard that – A CORPORATION PROTECTS YOUR PERSONAL ASSETS. In fact, this is the number one reason why people incorporate. By forming a corporation, you are establishing a separate legal entity distinct from yourself. By keeping your personal assets and matters separate from those of your business, you limit your personal liability. This means that in case of a lawsuit or judgment against your business, no one can seize your personal assets, your home, car, boat, savings accounts, etc. Assuming your corporation is properly prepared and maintained, it’s rock-solid protection for personal assets.

But there’s the rub. You MUST properly prepare and maintain your corporation. What does this mean? It means:

  • Paying attention to details. Use your correct corporate name for ALL transactions, correspondence, invoices, internal memos, checking accounts, etc. Always sign documents in your corporate, not personal, capacity.
  • File a Fictitious Business Name Statement if you want to use a variation of your corporate name.
  • Make sure your business cards reflect both the proper name of the corporation and your title.
  • Properly fund your corporation. Keep your money and that of the corporation separate. Your corporation is not your piggy bank!
  • Properly document both loans and security interests for loans.
  • Timely file the Statement by Domestic Stock Corporations.
  • Make sure your stock is properly issued and that the proper Notice of Stock Issuance was actually filed with the State.
  • Do have annual meetings of both shareholders and directors in addition to special meetings when necessary.
  • Keep your corporate minutes up to date and in the proper form in your corporate book.

If someone sues you and you have failed to follow these requirements, the court may decide that your corporation is a “sham” or a “mere conduit” through which you conducted your own affairs. This will result in a judgment which “pierces the corporate veil” and allows the other side to reach through to your personal assets!

Don’t allow this to happen to you!
CALL VAL FIRST for a corporate “check up” today!
VALERIE L. KRAMER at (888) 866-3620


Get Authentic Legal Advice – We Are not a Paper Mill!

FloristsFirst order of business is to talk over your business – what you do, average transaction, retail, service, professional, typical clients, and thoroughly talk through your personal and business goals and objectives. Then we can assist you in determining what entity formations would make the best sense to meet your needs. There are often some compromises, but one will rise to the top of your list when you weigh the pros and cons based on your very unique circumstances.


Let’s Look at a Visual Info Graphic to Compare Entities

BUSINESS FACTORS

CORPORATION
(INC)

LIMITED LIABILITY COMPANY (LLC)

PARTNERSHIP
(“P-ship”)

Ease/Difficulty of FormationArticles of Incorporation must be filed with Secretary of State.  Statement of Information must be filed within 90 days after incorporation.  Notice of Stock Issuance must be filed. Structure/operating rules already provided for by statute, but if restrictions on stock transfer desired, then detailed agreement necessary.  After formation, directors must be elected, officers appointed, bylaws prepared and adopted, and shares issued.  Other organizational tasks must be completed as well, all of which should be reflected in corporate minutes.Articles of Organization must be filed with Secretary of State.  Statement of Information must also be filed within 90 days of formation.  Oral operating agreements permitted in some circumstances.  When written operating agreement required, generally lengthy and complex.No filing required to form.  Partners should, but need not enter into a written p-ship agreement.  Cost and complexity of written p-ship agreement depends on structure and business of the p-ship.  Written p-ship agreement could cost more than incorporation.
Management/ControlManaged by or under control of Board of Directors.  Directors, who have to answer to the shareholders, generally determine corporate policy and “big picture” items; officers manage the day-to-day affairs.Corporate structure can be highly centralized, especially with many shareholders.Articles of Organization can state that the LLC is to be managed by managers.  Otherwise, the LLC is managed by its members.  An LLC may have officers.  A written operating agreement may eliminate the right of members to remove managers.  An LLC provides great management flexibility; however, care must be taken because the choice of centralized management is an indicia of corporate structure.Unless p-ship agreement states otherwise, all partners have equal say in the business.  P-ship agreement can be very flexible in establishing who can control the operations of the business.
Agency/AuthorityOfficers are agents of the corp…  Neither shareholders nor directors have agency authority to bind the corp.In a member-managed LLC, every member is an agent of the LLC and the act of any member within the usual way of the business binds the LLC.In a manager-managed LLC, every manager is an agent of the LLC and the act of any manager in the usual way of the business binds the LLC, but the members can’t.Note that the Articles of Organization could limit the authority of members or managers to bind the LLC, but such limitations won’t be effective against 3rd parties who don’t have actual knowledge of the restrictions.Each partner is an agent of the p-ship.  The act of any partner within the usual way of the business binds the p-ship.  Note that a restriction on authority in the P-ship agreement will not be effective against 3rd parties who have no knowledge of the restriction.
Liability of Owners for Business ObligationsShareholders are not generally liable for the obligations of a corp.  However, they may be liable to the extent they personally guaranty corporate debts; to the extent they receive improper distributions; if a court “pierces the corporate veil” of a corp. to impose personal liability; if a controlling shareholder breaches a duty to the other shareholders or the corp.; or for their own malfeasance (bad acts).Members of an LLC are not generally liable for the obligations of the LLC.  However, a member may be liable to the extent they personally guaranty the LLC’s debts; for the member’s own malfeasance (bad acts); to the extent they receive improper distributions from the LLC; and if a court “pierces the company veil” of an LLC to impose personal liability on the member.  The “pierce the veil” criteria are the same as for a corp. except that the failure to hold meetings of members or managers or to observe formalities pertaining to meetings isn’t a factor if the LLC isn’t required to hold meetings.Partners are jointly and severally liable for the wrongful acts or omissions of any partner acting in the ordinary course of p-ship business or with authority of the partners.  Partners are also jointly liable for all other obligations of the p-ship.
Transferability of InterestsShares are more easily transferred (if there is a market) than p-ship or LLC interests.  There are generally no statutory limits on the right of a shareholder to transfer his stock; consent of other shareholders isn’t required.  But, in closely held corps (“mom and pop” corps), transfer or other disposition of shares is often restricted by a shareholder agreement or by provisions in the Articles or Bylaws.A member may transfer his economic interest without the consent of the other members, but this transfers only the right to share in distributions, profit and loss allocations, and does not transfer voting rights or the right to participate in management.  Unless the operating agreement provides otherwise, the assignee of an economic interest cannot be admitted as a member without the consent of a majority in interest of other members.Interests are not easily transferred.  A partner may assign his economic interest in the p-ship to a 3rd party, but this transfers only the right to share in distributions, profit and loss allocations, and does not transfer voting rights or the right to participate in management.
Ability to Raise CapitalA corp. is capitalized through equity contributions by its shareholders and loans both from shareholders and 3rd parties.  Because of limited liability and relatively free transferability of shares and because the consequences of investing in stock may be better understood than investing in P-ships or LLCs, corps tend to be more attractive to risk capital.An LLC is capitalized through capital contributions by members plus loans from members and 3rd parties.  Because of the tax treatment as a p-ship, the structural flexibility and the limitation of liability, LLCs are attractive to certain passive investors and  may become attractive to venture capital.Generally comes from the partners’ capital contributions and loans, either from partners or 3rd parties.  P-ships are generally not attractive to passive investors, because of the risk of personal liability and the lack of free transferability of the P-ship interests.
Are interests in the Entities deemed Securities?Always.Maybe.  LLC interests will be securities for purposes of California law, unless all members actively engage in the management of the LLC.  LLC interests may or may not be securities for purposes of federal law, depending on the facts and circumstances.Not usually.
Continuity of BusinessA corp. has an independent existence; it’s not terminated by the withdrawal, death, or other event affecting the shareholders, directors or officers.  However, a corp. can be forced into dissolution under certain circumstances  by either ½ of the directors in office or a shareholder or group who, together, hold at least 331/3 % of the outstanding shares of the corp.Unless otherwise provided in the Articles of Organization or a written operating agreement, an LLC will dissolve on a specified date or the written agreement of all members to dissolve.  Cautionary Note:  Continued existence is an indicia of corporate structure.Unless otherwise provided in a written P-ship agreement, a general p-ship may be dissolved by the express will of at least half the partners to dissolve and wind up p-ship business.
Number of Owners RequiredOneOneTwo
Okay for Licensed Professionals in CA?Yes (professional corp.).No.  An LLC may not perform any services that are licensed by the CA Business and Professions Code.  This includes professions such as law, real estate, contractors, and even locksmiths!Yes, except that licensed professionals may not form p-ships with non-licensed persons.

Detailed Information about Most Common Business Entities

While there are many business entities that a business can choose, but the most common types of entities are:

  • Sole Proprietorship – A sole proprietorship involves an individual doing business in his or her own name. While it is a simple and flexible form of doing business including the simplicity of filing but one tax return each year, a sole proprietorship offers no legal protections or “firewalls” that will protect the individual with regard to their personal assets against business creditors, customer, employee or stranger lawsuits. That said, the protection of personal assets can often be significantly removed and sheltered by creating an estate plan that may have some asset protection components to better protect the business owner’s personal assets.
  • Partnership – A partnership is an agreement between two or more individuals who will share the profits and losses of a business. A partnership is a flexible business entity formation that can offer protection of the partners’ personal assets against business creditors and customer, employee or stranger lawsuits. For professionals, there are special considerations that a partnership may offer, and the partnership formations would be designated as a Limited Liability Partnership or LLP.
  • Corporation – A corporation is a formal type of business entity formation that will protect its shareholders from the liability of business debts unless the shareholders should choose to personally guarantee such debts. Often required by many vendors when significant materials or supplies are needed. Corporate dividends are subject to separate taxation, but for small businesses that can be minimized. Also there is the consideration of the extra costs involved in maintaining a corporation, some additional paperwork and tax returns which do not exist with some other simpler business entity formations.
  • Limited Liability Company – For some new or existing small businesses, an LLC fills the bill for the most attractive business entity. LLCs have members, as opposed to the shareholders of a corporation while enjoying the same liability protection of the more complex corporation. Moreover, LLCs do not encounter the often harsher tax liabilities and maintenance needs required of a corporation.

We are here for you with affordable legal services – whether your business is located in Orange County, Los Angeles, or Riverside, we can provide you with the affordable legal services you require to help you set up your business and then keep it and you (personally) protected and thriving.

Call Valerie to Share your New Business Dream, or check Name Availability

Valerie L. KramerCall Valerie L. Kramer to share your opportunity or concern by phone, or to set up an office consultation. We are dedicated to helping Orange County entrepreneurs, professionals and established business owners make educated, informed decisions about their business endeavors, business formation choices, and other opportunities and troubles that invariably come knocking —at some point— on every business owner’s door. Call us at (888) 866-3620 today.