You have taken the leap and decided to open your own business in San Diego, but do you know where to start? Selecting the right business entity for your new enterprise is one of the first steps in the process.
The Role of the Business Plan in Entity Selection
You’ve probably read and heard a lot about the importance of a business plan but is that really an important part of the process. Can’t you just form an entity and get going?
Making the wrong decisions early on could limit your options down the road, add substantial tax burden or even limit your ability to grow. The reason to discuss your plans for the company with the experienced, proven business start-up attorneys at the Watkins Firm is to help to determine the best entity (or entities) for what you have in mind.
Why Do You Need an Entity for Your Business?
Generally speaking, a business entity is kind of like a living being in the eyes of the law. The entity is different from those who own it from a legal perspective. The legal separation of the entity from it’s owners protects each owner’s personal assets (and liabilities) from the actions and any resulting liabilities of the business. The “corporate veil” is an important legal and financial protection and is the primary reason for having an entity.
The second reason for selecting the right business entity is each type of business entity is able (or unable) to accomplish specific things under the law. This is why it is important to choose the right entity based upon what it is you’re going to try to do with the business itself.
What Are the Basic Types of Entities to Choose From?
The basic business entities are a partnership, a Limited Liability Corporation (LLC), a C Corporation, an S Corporation, a Professional Corporation, a Management Services Organization or MSO, or a nonprofit entity such as a 501(c)(3) organization. Each entity has advantages and disadvantages based upon the nature of the underlying business you intend to conduct.
The business formation attorneys at the Watkins Firm have been helping entrepreneurs and business owners to select and form entities for more than four decades. We have extensive experience in all forms of companies and businesses. We will discuss your objectives and help to identify the best entity (entities) for your unique circumstances.
Can’t Any Business Entity Accomplish Any Business Objective?
Is this company going to basically be “Myself, Inc.,” a single person licensed professional, sales or service entity? Will you have a partner or partners in the venture? Will you need outside investors now or somewhere down the road? Do you intend to conduct business across state lines here in the US or internationally? Do you think it might be possible that your company might acquire other businesses down the road?
Some forms of entities are limited to specific applications such as the example of the Professional Corporation or Management Service Organization. If you intend to seek multiple outside investors, conduct international business or acquire other entities it might not be legally possible with an LLC or S Corporation. Nonprofit does not mean tax exempt under the eyes of the law or the IRS. Each type of corporate entity is tailored to the specific task(s) at hand.
What are the Relationships Between the Owners and Their Rights and Responsibilities?
What are the relationships between the company’s owners, investors, officers and executives? How will profits be divided? What voting rights (if any) does each person or level of persons enjoy? What happens if the company needs an infusion of additional money? How will each owner be protected from the actions of other owners within and outside of the operations of the company?
One of the most important reasons for selecting the right business entity is also the actual essence of the company itself, the “corporate documents.” In a corporation, the Corporate Bylaws and shareholders’ agreement are basically a contractual set of rules to organize the management of the company and to outline policies and responsibilities of shareholders, officers and/or directors. The Operating Agreement in an LLC serves basically the same purpose.
Why Shouldn’t I Just Download Some Forms and Get To It?
After more than 40 years of experience the attorneys at the Watkins Firm clearly understand what it’s like to be starting a new entity. In many cases budgets are already stretched. It sounds so easy to just download a form, make a couple of modifications and go to it.
Each form of entity has dozens (literally more than 100) separate legal clauses and provisions which must be precisely tailored to the situation at hand. It is important to understand the nuances of each and every clause and why they should or should not be included in your company’s corporate documents. The strength and clarity of the corporate documents protects the investment and interests of the owners while reducing the likelihood of disputes and resulting litigation down the road.
Selecting the Right Business Entity and the Right Business Attorney
You are about to invest a substantial amount of your time and energy into a new business venture. This usually involves taking some personal as well as financial risks. The San Diego business attorneys at the Watkins Firm have helped to form literally thousands of companies. We’ve seen a lot in more than 40 years of business. We have a lot to share with you as you form your new company. We want to see your hard work pay off.
There will be disagreements about specific decisions, money, responsibilities, actions or inaction. It’s not a mater of if, it’s a matter of when. Selecting the right business entity and carefully tailoring the corporate documents not only substantially reduces the risk of a dispute, it will save you a substantial amount of money at almost every point in the journey.
You need a business advisor you can trust. You need a proven, successful business attorney as part of your external core team (attorney, CPA/tax advisor, money/banker). Is this a serious venture? We want to help you to not only succeed but thrive. We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
