Business Formation Attorney

What does a business formation lawyer do?

Selecting a company entity is one of the initial stages in starting a business. The characteristics of various entity kinds vary with regard to ownership, management, taxation, and responsibility.

You can assess the various entity kinds and select the best one for your company’s objectives and organizational structure by speaking with a business formation attorney. Personalized business formation services, such as the creation of corporations, LLCs, partnerships, and other entities, are offered by Nakase Wade. Get a free evaluation of business creation by calling now.

How can a business formation lawyer help an entrepreneur?

There are many forms of business entities, as well as numerous ways to set them up and organize them. Of all the things to think about, liability protection and taxes are two of the most important ones. Establishing a firm as an LLC or Corporation offers “limited liability” protection, insulating the owner’s private assets from the debts of the business. Additionally, it shields the business from other owners’ actions and the owners’ personal debts.

Different entities manage taxes in different ways. Double taxation occurs to a traditional corporation on both the corporate and personal levels. S-Corps and LLCs, on the other hand, provide “pass-through taxation” and only pay personal income taxes once.

The number of owners, the management structure, and the company’s capacity to attract investors are some other factors to take into account.

The unique objectives, strategies, and preferences of the business owner will determine how things turn out in the end. In order to reduce liability risk and increase operational effectiveness, a business formation lawyer can assist in evaluating the business difficulties and creating a formation strategy.

Different Business Entity Types

• Limited Liability Company (LLC)
• General Partnership
• Limited Partnership
• Limited Liability Partnership (LLP)
• C-Corporation
• S-Corporation
• Close Corporation
• Professional Corporation (PC)
• Limited Liability Company (LLP)
• Non-Profit
• Sole Proprietorship

How a business formation lawyer can help with filing documents

A business needs the appropriate bylaws, operating agreements, or other governing papers, which set the rules and regulations for how the firm will be operated. These should be completed once an organization has been selected and the required paperwork has been filed with the state. The company can also require more paperwork to complete the acquisition or sale of stock. Nakase Wade offers a range of transactional legal services as well as specially designed business formation services, such as:

• Evaluation of business names
• Reservation of business names
• Assemble and submit the formation paperwork
• Create draft operational agreements or corporation bylaws
• Initial shareholder contracts
• Obtain registered agent
• Obtain EIN

Certain entity kinds offer greater tax benefits, while others offer liability protection. Some entity types work better for enterprises with one owner, while others work well for larger organizational structures. While some are better suited for brick-and-mortar stores, others are more suitable for online businesses. You can choose the best business entity and overcome these challenges with the assistance of a business formation lawyer.

How to Submit Formation Documents

Each kind of business entity necessitates specific business formation documents to be submitted to the state. These may encompass bylaws, operating agreements, and other directives outlining the governance of the business. Whether you are working with a business formation lawyer in San Diego or a Los Angeles counterpart, the same set of documents is typically required. Additionally, certain business structures may mandate documents outlining procedures for the selling and buying of business equity.

A business formation attorney can provide the following services:

1. Assessing availability of business name
2. Reserving a business name
3. Filing formation documents
4. Drafting and filing shareholder agreements
5. Drafting and filing corporate bylaws and operating agreements
6. Obtaining an Employer Identification Number (EIN)
7. Acquiring an Agent for Process

A lot of business owners in California independently file for business licenses on their own, whether it be a business license in San Diego, a business license in Los Angeles, or a business license in Orange County. However, if you require assistance, do not hesitate to reach out to our business formation lawyer for guidance.

Factors to Weigh When Establishing a Business

Prior to engaging business formation services from a business formation attorney, there are several considerations that can impact what entity type to choose during the formation process, including:

1. Restrictions on selling the business
2. The number of owners
3. Business objectives
4. Management structure.
5. Ability to take on investors

That said, the primary factors that businesses prioritize when choosing their entity type are liability protection and taxes.

Liability Protection

When a business is established as an LLC or corporation, the owners enjoy limited liability. This means that in the event of a claim against the company, damages can only be sought from the business’s assets, not from the owners’ personal assets. Likewise, the company is shielded from the owners’ personal debts and actions.

Taxes

Taxation methods vary for different kinds of entities. For instance, a corporation is subject to taxation at both the corporate and personal levels. On the other hand, LLCs and S Corps are only taxed at the personal level.

A business formation lawyer can assist you in assessing the pros and cons of each entity and help determine which one is best suited for your enterprise.

What is a sole proprietorship?

A sole proprietorship is a popular type of business organization where a single individual conducts business on their own behalf. Unlike entities like LLCs or corporations, a sole proprietorship is not considered a separate legal entity from its owner. This type of business is straightforward to establish and is cost-effective, as it does not require formal registration with the state’s business organization office. Thus, a business formation attorney may not be necessary to set up this entity type.

However, certain businesses may need specific licenses or permits according to local or state regulations. For instance, a restaurant owner might need a liquor license, and professions like law or plumbing may require state-issued licenses. If the sole proprietorship deals with sales taxes, it must obtain a sales tax certificate. If the company hires employees, a Federal Employer Identification Number is essential. To assist with getting the proper licenses, an entrepreneur may wish to hire a business formation lawyer.

If a sole proprietor operates under a name different than their legal one (an alias or trade name), they need to file a statement indicating the relationship between the legal name and the business name. This filing may be known by different terms depending on the state, such as assumed name, trade name, or fictitious name. To help look up names and ensure there are no trademark or civil violations, an entrepreneur can get help from a business formation attorney.

Managing a sole proprietorship is straightforward, as decisions rest solely with the owner, eliminating the need for formal votes or meetings. Another advantage is that all losses and profits are attributed to the business owner and are reported on their personal income tax return. The company itself is not subject to separate taxation.

However, the main drawback is that the owner has personal liability for the business’s debts. If the business’s assets are insufficient to cover its obligations, the owner’s personal assets may be used to satisfy those debts. To go over the pros and cons of a sole proprietorship, an entrepreneur may contact an experienced business formation lawyer for advice.

What is a general partnership?

A partnership is a common form of business organization where multiple individuals agree to engage in business together. This arrangement is a recognized common-law right, meaning it can be established without the need for specific statutes. However, each state does have statutes that govern partnerships, primarily outlining automatic provisions that apply when the partners haven’t addressed these matters in the partnership agreement. These statutes typically state that in the absence of contrary provisions in the agreement, all partners have the same authority in managing the partnership, and they share losses, profits, and income distributions equally. Additionally, in this type of business organization, every partner is regarded as an agent of the partnership and can legally bind the other owners in relation to the company. Because of the seriousness of such situations, it is a good idea to contact a business formation attorney to discuss how best to set up a general partnership.

A general partnership can be informally established through a verbal agreement or through a formal, written partnership agreement. That said, it is generally recommended to have a written partnership agreement in place. This document usually includes the following information:

• – Personal information of the partners
• – Each partner’s rights regarding profit-sharing and management
• – The nature of the partnership’s business
• – The expected partnership duration
• – Criteria for adding or withdrawing partners
• – Provisions governing the partnership’s dissolution, along with any other terms the partners consider necessary for guiding the relationship and business operations.

Similar to a sole proprietorship, a general partnership shares many of its favorable aspects. It is easy to set up and manage, and it does not face income taxation at the entity level. Instead, it is considered a “pass-through” entity, with losses and profits passing through to the individual owners. However, like a sole proprietorship, a partnership also exposes the partners to unlimited personal liability for the business’s debts. For advice on how to set up a partnership, an entrepreneur should seek the advice of a business formation lawyer.

What is a limited liability partnership?

The limited liability partnership, commonly known as LLP, is another business organization option for entrepreneurs that a business formation attorney can assist with. It is a specialized form of general partnership. The key difference between an LLP and a standard general partnership lies in the level of liability exposure for partners. In an LLP, partners have limited liability, as opposed to the unrestricted liability in a general partnership. In most states, LLP partners are protected from personal liability for the partnership’s obligations and debts. However, in certain states, partners may still be held responsible for certain obligations and debts, excluding those stemming from the wrongful actions or negligence of fellow partners. Because of this, it is advisable to retain a business formation lawyer.

To transition from a general partnership to this business structure, a registration form must be filed with the secretary of state or the relevant filing authority. Alternatively, in certain states, an LLP can be established without prior existence as a general partnership. If an LLP conducts business in a state different from its state of formation, it must register as a foreign LLP before operating in that state. Additionally, in the majority of states, this type of business organization is required to submit an annual report. For assistance, it is best to seek the help of a business formation attorney.

What is a limited partnership?

Limited partnerships (LPs) are made up of two types of partners: limited partners and general partners. General partners enjoy the same authority, rights, and responsibilities as partners in standard general partnerships. They oversee the relationship, share in losses and profits, and bear unlimited personal liability. In contrast, limited partners have their liabilities confined to their investment in the venture, similar to shareholders in a corporation. As a fundamental rule, limited partners usually refrain from participating in the business’s management. To better understand the limits of these roles, entrepreneurs should seek the guidance of a business formation lawyer.

This type of business organization operates as a pass-through tax entity, meaning it is not subject to federal income taxes.

Establishing a limited partnership requires adherence to state statutory requirements for formation, as it cannot be solely established through business activities.

To formalize a limited partnership, it must submit a certificate containing specific information as prescribed by the state of establishment. State regulations typically impose restrictions on the choice of the partnership’s name, require the appointment and retention of a service of process agent within the state, and necessitate filings for any amendments or cancellations of the certificate. Additionally, state laws allow out-of-state (foreign) limited partnerships to obtain licensure for conducting business after submitting the required application. For guidance on these rules, entrepreneurs should contact a business formation attorney.

What is a limited liability company?

A limited liability company, commonly referred to as an LLC, represents another legally defined entity and common business organization. It does not fall into the categories of a partnership or a corporation, but rather operates as a “hybrid” organization, combining certain features of both. Typically, it is established by submitting articles of organization to the appropriate state filing authority. The majority of regulations pertaining to the internal workings of an LLC are outlined in an operating agreement, which the owners agree upon. This agreement bears resemblance to a partnership agreement. In recent times, the limited liability company has emerged as the most common business organization in the U.S.

An LLC can be owned solely by one individual or have multiple owners. The proprietors of a limited liability company are referred to as members. Like shareholders or limited partners, the owners of a limited liability company are not held personally liable for the business’ debts based solely on their ownership status. Further, members possess the authority to oversee the company’s operations and affairs, and this does not jeopardize their limited liability status, even if they take on managerial roles. Alternatively, the members may opt to appoint at least one manager to operate the LLC if they prefer not to handle it themselves. To get help setting up an LLC, an entrepreneur should not hesitate to contact a business formation attorney.

One of the key advantages of a limited liability company is its pass-through taxation structure. Unless it specifically elects otherwise, an LLC is not obligated to pay a separate income tax at the entity level. Instead, its losses, profits, and other tax-related items pass through to its owners. A business formation lawyer can review other benefits of the LLC structure with you.

If a limited liability company conducts business in states other than its state of origin, it must seek authorization to operate in those foreign states. The laws governing the internal affairs and member liability of a foreign LLC are typically dictated by the state where it was originally established. To understand these specific laws, do not hesitate to contact a business formation attorney.

What is a business corporation?

A corporation is another prevalent kind of business organization, often considered the most complex. State law governs its establishment and internal workings. A business corporation is an entity created for profit in accordance with the laws of a specific state. Nonprofit corporations, subject to distinct legal regulations, are not addressed in this publication. While corporations were once the most common business structure in the U.S., LLCs are now more frequently established than corporations in most states. Nonetheless, the corporation has stayed a viable and popular choice for many entrepreneurs, particularly for publicly traded businesses. For help in establishing a corporation, an entrepreneur should hire a business formation attorney who will experience with incorporation.

There are 4 key advantages to operating as a corporation:

1. Investors are not personally responsible for the obligations of the corporation.
2. The corporation may exist forever.
3. Capital may be raised through the issuance of securities and stocks.
4. The management of the corporation is centralized, allowing investors to avoid direct involvement in daily operations.

However, there are 3 significant drawbacks to corporations:

1. It is costly to establish.
2. It can be complicated to manage.
3. It receives “double taxation” – meaning the corporation pays tax on its earned income, and shareholders also pay an income tax when received in the form of distributions and dividends upon the liquidation of the corporation.

To weigh the pros and cons of this entity structure, an entrepreneur should be sure to seek the help of a business formation lawyer.