Most small business owners choose their ownership structure once, early, with very little thought, and then never revisit it as the business grows into something that structure no longer fits. Corporate guidance is largely about catching that before it costs you.
The wrong structure can leave both the business and you personally exposed. We can help you understand your options for incorporating with the structure that is most advantageous to your situation.
Common Types of California Business Structures
General Partnership: A general partnership is automatically created any time two or more people pool resources intending to share profits and losses. General partnerships are easy to start and set up, but they offer no liability protection. Owners will be personally liable for business debts as well as for each other’s actions. Another problem is that there is potential for conflict if partners disagree on how the business should be run. A well-drafted partnership agreement can help reduce conflict as well as address continuity issues.
LLC: Forming an LLC gives you protection against being held personally liable if your business can’t pay its debts or gets a judgment against it in a lawsuit. Because an LLC is not a separate taxable entity, partners will have to record business profits and losses on their own tax returns. But the up side is that profits from the business will only be taxed once (when the partners take them as income). The requirements for forming and operating an LLC are fairly simple and it is often considered an ideal mix of the ease of a general partnership and the protection of a corporation.
Corporation: Forming a corporation makes the business its own separate entity, both for legal purposes and tax purposes. This means that partners cannot be liable for business debts, but profits from the business will be taxed twice—once when the business reports them and once when the partners take them as income. Setting up a corporation is more complicated than setting up an LLC but it does offer additional options when it comes to running the business.
Rely on Us for Corporate Guidance and Incorporations
While it is possible to set up any kind of general partnership, LLC, or corporation without the assistance of an attorney, this is not necessarily the best path. Without an experienced attorney like Alejo Lugo on your side, you could easily make mistakes in your paperwork or your operating agreement that will put you at a disadvantage in the future.
Having a relationship with an attorney who knows you and your business will also be very valuable if you need legal representation in the future for issues like lawsuits, contract disputes, changes of ownership, changes of corporate structure, etc.
Call The Law Offices of Alejo Lugo & Associates at (800) 497-0018 now to learn more about how we can assist you with your business law needs.