The Anastasi Law Firm is proud of its service to business owners. They are the economic engine of the State of California and the United States of America.
There are many types of business structures, but some do not understand the value of creating a structure with limited liability protection that is offered with a corporation and limited liability company (LLC) structure. It is important to select and properly set up the most beneficial structure. Some people love the idea of LegalZoom services. Having dealt with disasters by self-created and online created entities, one should carefully consider if the money “saved” is really worth the cost of an internet do-it-yourself corporation or LLC. Mistakes in your structure can be very expensive. If one does not understand the significance of the question, what is the value of the answer? Avoid a Zoom mess. Do it right the first time.
Types of Business Organizations
When organizing a new business, one of the most important decisions to be made is choosing the structure of a business. Factors influencing your decision about your business organization include:
- Legal restrictions
- Liabilities assumed
- Type of business operation
- Earnings distribution
- Capital needs
- Number of employees
- Tax advantages or disadvantages
- Length of business operation
This is the easiest and least expensive way of starting a business. A sole proprietorship can be formed by finding a location and opening the door for business. There are small fees to obtain a business license, business name registration, a fictitious business name statement and other necessary licenses. Attorney’s fees for starting the sole proprietorship are quite low since the document requirements are minimal.
The two most common types “partnership” are general and limited. A general partnership can be formed by an oral or written agreement between two or more persons engaged in a venture for profit, but a partnership agreement drawn up by an attorney is highly recommended in solving many potential disputes that are not anticipated at the time of formation. Generally, the Anastasi Law Firm strongly disfavors forming general partnership entities primarily because each partner is jointly and severally responsible for the other partner’s business actions, as well as their own of course. Additionally, each partner’s personal assets are not protected if the business were to suffer an adverse legal situation.
A corporation, when properly formed and maintained, is a separate, legally distinct entity. Its rights and liabilities are separate from the individuals operating it and the shareholders who funded the capitalization. Formation starts with the filing of Articles of Incorporation with the Secretary of State. At the organizational meeting of the new corporation, individuals become shareholders by contributing assets to the capitalization of the corporation. Shareholders enjoy limited liability of the corporation’s conduct in business; only their investment is at risk.
Shareholders elect directors of the corporation who are responsible for all significant business decisions and strategy. The directors of the corporation appoint corporate officers (CEO, president, vice-president, chief financial officer, and corporate secretary) to manage the day-to-day operations of the enterprise. The officers are agents, often employees, of the corporation.
Limited Liability Company (LLC)
The LLC is a partnership-corporate hybrid business structure. It is designed to provide limited liability to the investors similar to the features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership and can be more complex than a corporate formation. The owners/investors are called “members”, and the management structure of the LLC is determined when the Articles are filed. The LLC can be managed with less informality than a corporation. The controlling management regulations of the LLC are established in the Operating Agreement, which can be straight-forward or very creative and complex, depending on the goals and objectives of the company founders.
Limited Liability Partnership (LLP)
LLPs are organizations that provide a professional service, such as medicine or law, for which each partner is licensed. LLPs are organized to protect individual partners from personal liability for the negligent acts of other partners or employees not under their direct control. Partners report their share of profits and losses on their personal tax returns.
A PC is available to certain licensed professionals, such as doctors, lawyers, and accountants, and must be organized for the sole purpose of providing a professional service for which each shareholder is licensed. The limited personal liability for shareholders is not as strong as compared to an LLC or regular corporation.
Limited Partnership (LP)
LPs have complex formation requirements and require at least one general partner who is fully responsible and liable for partnership obligations and normal business operations. The LP also requires at least one limited partner, often a financial investor, who is not directly involved in operations of the business. The limited partner is shielded from liability for partnership obligations beyond the amount of their investment. LPs do not pay income tax, but must file a tax return for informational purposes; the partners report their share of profits and losses on their personal returns.
Non-profit Corporation are formed for civic, educational, charitable, and religious purposes and enjoy various levels of tax-exempt status and limited personal liability. Non-profit corporations are managed by a board of directors or trustees.
Personal Attention • Prompt Service • Affordable Fees • Experienced
Contact us today to set up a Free Consultation (20 minutes) either in our office or over the phone. In the San Jose metro area, call us at 408.292.2606. In the Santa Cruz area, call us at 831.475.0771.