Business Entity Formation

Experienced San Jose Business Entity Formation Lawyer Serving San Jose, Santa Clara County, and the San Francisco Bay Area

Trust Richard G. Burt as San Jose Business Entity Formation LawyerAny lawyer can form a corporation or other entity, but entrepreneurs are well-advised to hire a lawyer who is knowledgeable about incorporating and about forming and organizing limited liability companies. An attorney who is experienced in both corporate formation and in LLC formation is generally better suited for the business owner who wants to form a business entity.

There are many types of business entities, among them partnerships, corporations, and limited liability companies (LLC’s), and picking the right entity can be critical. Make the wrong choice, and the consequences can range from annoying to dire. A knowledgeable and skilled business formation lawyer, one who is expert in incorporation and LLC formation, can help you decide what type of entity would be best for you. Understanding the advantages and risks of each type is critical.

  • If there is one owner, the principal choices are sole proprietorship (which technically is not a type of entity), corporation, or limited liability company (LLC).
  • If there is more than one owner, the principal choices are partnership (either a general partnership or a limited partnership), corporation, or LLC.
  • For certain professionals, a limited liability partnership (also referred to as a registered limited liability partnership) is available, but that is limited to partnerships engaged in the practice of law, public accountancy, architecture, engineering, or land surveying.
  • Yet another type of entity is a business trust, although it is not commonly used in California.

In determining which form of entity to choose, an attorney knowledgeable in forming corporations, limited liability companies, and partnerships will consider several factors.

Limited Liability

The first factor to consider is limited liability. What this refers to is that, with certain types of entities, the obligation of the owner (or owners) is limited to the money or other property contributed to the business (as well as any money or other property that an owner has committed to contribute to the business in the future).

For an entity that is not a limited liability entity, each owner is fully liable for the obligations of the business, even if the owner has not agreed to contribute to it in the future. Thus, owners of sole proprietorships and partnerships do not enjoy limited liability for the obligations of the business. If there is a debt or other liability, they have to pay it out of their own pockets if the business can’t.

The owner of a corporation or of an LLC enjoys limited liability for the obligations of the corporation or LLC. Where an incorporation lawyer or LLC lawyer will be of help is in advising clients what actions or omissions expose the owner to personal liability even though the business is incorporated or part of an LLC.

The limited partners in a limited partnership also enjoy limited liability, but each general partner of a limited partnership is fully liable for all the obligations of the limited partnership.

For more information about the ins-and-outs of incorporation or of LLC formation, contact Richard Burt, an experienced San Jose incorporation attorney and LLC formation attorney.

Tax Factors

After the issue of limited liability is resolved, legal counsel typically next considers the tax aspects of the different forms of business organization, often with the guidance of the client’s accountant.

When incorporating a business or forming an LLC to operate an existing business, there can be unexpected tax consequences. This is an area when an experienced incorporation attorney or LLC attorney can be decisive.

For example, the expectation of most clients when forming a corporation is that the incorporation will be tax-free. When there is no existing business and the incorporation lawyer is forming a corporation that will be funded with cash, the risk of a tax pitfall is less, but if two parties get together to form a corporation and one party contributes cash and the other party provides services, there can be a very unpleasant surprise for the service party, one that an experienced incorporation lawyer can help avoid. And if there is an existing business that will be incorporated, there are more tax pitfalls that an experienced incorporation lawyer can help avoid.

One advantage of the limited liability company over the corporation is that there are fewer tax traps to look out for. Of course, fewer tax traps does not mean there are no tax traps. And this is where a lawyer experienced in LLC formation can be of service.

Eligibility Restrictions

Not every form of business organization is available for every kind of organization. Because of regulatory restrictions, some businesses can be operated only in corporate or partnership form (or as sole proprietorships). For example, an LLC is not eligible to operate certain kinds of business in California. In these cases, only a corporation is permitted to operate as a limited liability entity. These regulatory constraints must be taken into account in choosing the right form of entity, and a lawyer experienced in incorporations and organizing LLCs can help clients avoid errors.

Capital Structure and Allocation of Profit and Loss

Partnerships and LLC’s lend themselves more readily to complicated capital structures, with more flexible sharing of profits and losses, than do corporations. With a sole owner or small group of owners, this is usually not an issue since the capital structures are typically straightforward and not complicated.

But the flexibility of capital structure is a problem with S corporations, for they are not permitted to have more than one class of stock. Thus, allocating profit and loss in something other than a straight bottom-line fashion is problematic for corporate entities. But a knowledgeable incorporation lawyer can help clients achieve a more flexible structure for the S corporation than might appear at first glance.

While limited liability companies offer more flexibility in capital structure, an attorney knowledgeable in LLC formation is best equipped to implement a capital structure that achieves the client’s goals and minimizes disputes over allocations of profits and losses.

Control

One of the most important issues to owners is control. Control can be more easily and flexibly allocated in a non-corporate form, such as a partnership or LLC. Nonetheless, knowledgeable incorporation counsel can achieve much of the desired flexibility in corporate form, though typically the legal fees are higher since the corporate form is less flexible and requires more legal work to achieve the desired flexibility.

With a limited liability company, control can be more fine-grained than with a corporation, and a lawyer knowledgeable about LLC formation will help the client fine-tune control in ways that might not be readily apparent to the client.

Getting Started Right

If you want to speak with an experienced and knowledgeable incorporation lawyer who is also an experienced and knowledgeable LLC formation attorney in San Jose, contact us today. Call (408) 286-7333 and ask to speak to Janet to get more information to determine whether to hire Mr. Burt, or you can set up a fixed-fee engagement to discuss your particular circumstances. You can also send an email using the form on the contact page.