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Frequently Asked Questions About Business Formation

  1. How do I know which type of business entity is right for me?
    • A. There are several factors that one has to look at when choosing whether or not to operate their business as a corporation, limited liability company (LLC), partnership, or sole proprietorship. Some of the things to look at is how many owners / partners will there be; what are the liability concerns of the work you are doing; how much capital is needed to start and run the company; whether the partners / owners will have equal or un-equal shares; whether all parties will put in capital or if some will devote "sweat equity," what are the expected revenues of the company, what is the expected growth of the company. Only after answering these questions can a true path be found. In the majority of instances where there are multiple partners / owners, the principles are likely to find that a corporate (either C-Corp, S-Corp or LLC) will be the better fit.

  2. How can I be protected from liability?
    • A. Choosing to be either a corporation or a LLC can provide the shield of protection to prevent lawsuits from reaching personal assets of the shareholders or members of the company. Both corporations and LLC's require a specific formality to their structure and their continuing business life. When that structure continues to be met, liability stays with the company and does not pass through to the directors personally or the shareholders.

  3. If I choose a corporate identity, how do I decide between C-Corp, S-Corp and LLC?
    • A. In most instances, this choice will be determined on an estimate of projected gross revenues. Different entities are taxed differently and we often look to the account / CPA to help advise the client based on their projections as to which entity will provide the best program both now and in the future. Generally the LLC favors significant gross revenues and the S-Corp favors a more modest gross revenue stream.

  4. Am I better to file for my company in California or Nevada?
    • A. Many clients ask about anonymity, believing that to be anonymous will help to protect them from creditors and lawsuits. This is generally both incorrect and unnecessary. Nevada, arguably, has more protective laws regarding disclosure of information. However, when the business is doing business in California, there are required state filings which essentially negate the secrecy that Nevada provided, thusthere is just additional cost. Additionally, if there is a suit, then normal discovery procedures generally make available all the information which was sought to be hidden in the first place. While can and often do help clients establish their business according to the Nevada protocol, this is not always necessary.

  5. What is required as a legal entity?
    • A. There is a certain formality to the corporate / LLC business which must be adhered to which includes filing with the state Articles of Incorporation / Organization; Bylaws / Operating Agreement; Organizational Minutes / Meeting. Regular meetings are required as are separate books and accountings from personal books and accountings, along with separate tax ID and separate tax returns. Failure to maintain these disciplines can result in the loss of liability protection which is referred to as piercing the corporate veil.

  6. What kind of businesses should incorporate?
    • A. Generally businesses which involve some measure of risk or danger to the public. The business owner is trying to be protected from lawsuits which arise out of the operation of the business – if there is little to now risk of harm, then a major advantage of the corporate structure is unnecessary. For example a delivery business might wish to incorporate e.g., having trucks driving the streets could be involved in accidents; a landlord owns many units, a person could be harmed by tripping and falling or on a loose stair, etc.; a person giving stock and financial advice where the clients may become disillusioned by a fall in equity in their purchases. There are of course many more instances.

  7. What does incorporation services consist of?
    • A. When clients work through our office we offer them a turn-key business entity by filing with the state of their choice, providing and filing Articles in their name of choosing, creating bylaws / operating agreement, obtaining their minute books with stock certificates / membership share certificates, obtaining seal, obtaining tax ID number, creating the minutes for their first organizational meeting, and filing the first Statement of Information with the state.

  8. If I have partners, what should I be concerned most about?
    • A. One of the most overlook areas we have come across is a lack of a sufficient buy-sell agreement. We are constantly amazed by the false belief that when two partners equally work the business and one partner dies, the surviving partner thinks they get the business in its entirety – nothing could be further from the truth. What has just happened is that the surviving partner /shareholder / member has no become partners with the deceased partner's spouse, kids, parents, etc. who do not know anything of the business, will not participate in the day to day operation of the business, but will still retain the full partnership share of the profits. Most people when starting the business are so focused on getting the business going and being a success that the thought of separation or failure never enters into their mind. The next most important overlooked aspect is properly capitalizing a business, making sure that there is enough in reserve for when the business runs into a rough time or start that the business can weather the storm until revenues increase or resume.

  9. What does it take to get started in having our business incorporated?
    • Contact our office to schedule a free no obligation consultation to let us discuss with
      you your business plan and show you how a business entity works for you.