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Sacramento Business Formation AttorneysSacramento Business Formation Attorneys

Are you an entrepreneur working towards starting your own business? There are several options available to entrepreneurs, including sole proprietorships, partnerships, joint ventures, corporations, and limited liability companies. While the different business entities can be confusing at times, the decision you make is incredibly important. The decision will determine your liabilities, benefits, and operating structure. Allow our Sacramento business lawyers explain the differences between the business entities available to you. Our Sacramento business attorneys can walk you through the benefits of each entity and determine what will best fit your particular needs for you business formation.

Our Sacramento business formation attorneys are familiar with all of the advantages and disadvantages of each business entity.  Although we list a few of these advantages and disadvantages below, each individual case may call for a different explanation.  Our business lawyers have experience with all of the entities and can truly help explain everything in common terms.

What differentiates us from online providers?

Our Sacramento business attorneys will meet with you in person and answer all of your questions right there. We provide documents written specifically for your organization and do not use standard templates.  Compared to other venders, we generally offer more services with our flat fee packages. We will get your business up and running, ensure legal compliance, and provide you with the necessary documents to continue running your business.


The Business Formation Entities:

Sole Proprietorships

Sole Proprietorships

Sole proprietorships are single-person businesses. Only one person owns the business and is personally responsible for it’s debts. These businesses will generally operate under a fictitious business name, like Harry’s Coffee House. Sole proprietorships are one of the most common businesses. In fact, a lot of businesses are sole proprietorships without even knowing it! However, if the business is not a corporation or a limited liability company and has more than one member, the business is considered a partnership.

Here are some of the advantages and disadvantages of forming a sole proprietorship in Sacramento:

Sole Proprietorships Advantages

  • Easy Setup. Sole proprietorships are very simple and inexpensive to setup.
    • You will still need to comply with local registration and business licenses. A restaurant, for example, may need an alcoholic beverage license, a health permit, commercial refuse collection permit, storm water fees, etc.
  • Control. The single owner controls the entire business and runs the operations.

Sole Proprietorships Disadvantages

  • Personal Liability. The owner of a sole proprietorship is personally liable for all debts and actions of the business.
    • Your house, your car, and your bank account, could all be taken from you if something bad happens.
  • Legal Separation. Zero legal separation between the business and the person.
  • Business Life. Upon death, the business no longer exists.

Services Provide by Sacramento’s Business Attorneys:

  • DBAs;
  • Contract Drafting;
  • Advice on Day-to-Day Operations;
  • Federal Employer Identification Number; and,
  • MORE!

Partnerships

Partnerships

A Partnership is an agreement between two or more individuals to carry on as co-owners of a business for profit. There are no legal filing requirements or specific documents to form a partnership. A mere agreement will suffice and automatically create a partnership.

Here are some of the advantages and disadvantages of forming a partnership:

Partnership Advantages

    • Minimal Formalities. Partnerships are not required to elect officers, hold regular meetings, draft corporate and meeting minutes, or issue stock or membership certificates.
    • Easy Setup. Partnerships can be created with an informal agreement to start a business. There are no formal filing requirements.
    • Split Profits. A partnership will automatically form equal shares in management, profits and losses, and debts and liabilities of the business. However, if this type of structure is not what you desire, the partnership can draft a partnership agreement to opt out of the standard rules.
    • Taxes. Partnership are considered pass-through entities. Therefore, the partnership itself does not pay taxes on the income. The income passes through to the owners of the business and they are taxed individually. Compared to corporations, this creates a simple taxing structure.

Partnership Disadvantages

    • Personal Liability. The owners of a partnership are personally liable for all debts and actions of the business.
      • Your house, your car, and your bank account, could all be taken from you if something bad happens.
    • No Formalities. A lack of formalities can create a lack of organizational structure.

Partnership Agreements

A partnership agreement is not required, but highly recommended. If no partnership agreement is drafted, you will automatically fall into the default rules and your state’s laws will govern your business relationship. A partnership agreement should clearly state each parties intentions with the business, and this will reduce any arguments that may form in the future. These agreements help establish roles for the partners and understandings of each others expectations. Contact our Sacramento business attorneys for help in drafting your partnership agreement.

Buy-Sell Agreements

What happens if a partner decides to leave the business? This can create a legal nightmare if this situation is not dealt with in advance. A buy-sell agreement establishes an option for one partner to buy out the other partner if they want to leave the business. This establishes written, agreed-to in advance, rules that make departures smooth. Contact us for help in drafting your buy-sell agreement.

Types of Partnerships

  • General Partnership;
  • Limited Partnership; and,
  • Limited Liability Partnership.

Services Provided by Sacramento’s Business Attorneys:

  • Partnership Agreements;
  • Federal Employer Identification Number;
  • DBAs;
  • Advice on Day-to-Day Operations;
  • Contract Drafting;
  • Buy-Sell Agreements; and,
  • MORE!

Corporations

Corporations

If you’re considering starting a business or you’ve been operating as a sole proprietorship or as a partnership, a corporation might be the next step for you. Corporations are business entities with shareholders that are either privately held, or they may be publicly held and sold to the public. The law views corporations as separate legal “persons.” This means that corporations may enter into contracts and incur debts separate from the individual shareholder owners.

Our business formation attorneys break down some of the advantages and disadvantages of forming a corporation as follows:

Advantages of Corporations

  • Limited Liability. The debts of the corporation are separate from the shareholders; therefore, the shareholders only stand to lose the amount invested in the corporation. Any personal assets of the shareholders are protected, like their bank account and house. Board members, however, may be liable in some circumstances, like mismanagement of corporate funds.
  • Investor Opportunities. Ownership interests are great motivating tools for employee productivity. Corporations also provide outside investor opportunities such as venture capital and angel funds. If you are a startup seeking possible investments in the near future, C-Corporations are most likely the choice for you.
  • Corporate Formalities. Adhering to corporate formalities is generally seen as a negative; however, these formalities can ensure there is a structured approach to doing business. They establish a Board of Directors and create a formal process for doing business. For some individuals, this hierarchy scheme is welcomed. Moreover, this hierarchy can help establish credibility with customers.
  • Tax Advantages. A corporation may deduct health and life insurance premiums. Moreover, not all income is subject to social security, medicare taxes, and workers’ compensation withholdings.
  • Corporation’s Life. Corporations live forever, or until they are disolved. Sole proprietorships, for example, are dependent on the life of their owners. If the owner dies, the sole proprietorship dies as well. Someone who owns an interest in a corporation may sell or transfer their interest at any time, and the business will continue to operate.
  • Transferability of Ownership. Shareholder interests in C Corporations are easily transferred and sold.

Disadvantages of Corporations

  • Double Taxation. Profits for C Corporations are taxed when the income is distributed to the shareholders. Shareholders receiving the distributed income are then taxed on their personal tax returns. This can be avoided by making an S Election; however, that changes investment opportunities.
  • Corporate Formalities. In order to avoid what is coined “piercing the corporate veil,” the corporation must hold annual meetings, keep meeting minutes, maintain bank accounts, file taxes, maintain a board of directors, keep certain records, and ensure the proper compliance with all legal formalities. This can be tedious, burdensome, and scary for the uninitiated; however, Carson & Kyung can help walk you through all of these formalities.
  • Personal Ownership. There is no personal ownership in corporations. The corporation is a separate entity governed by the Board of Directors. In essence, you alone will no longer have complete control of the business.
  • Costs and Expenses. It is more expensive to start a corporation than a sole proprietorship DBA. You must pay state, and possibly federal, filing fees. You must also pay withholding taxes and other expenses.

Services Provided by Sacramento’s Business Attorneys:

  • Name Inquiry;
  • Name Reservation (if requested);
  • Articles of Incorporation;
  • Bylaws (or Operating Agreement);
  • Minutes: First Meeting, Annual Meetings, and Operating;
  • Statement of Information;
  • Federal Employer Identification Number;
  • Indemnification Agreements;
  • Stock Purchase Agreements;
  • Stock Certificates;
  • Buy-Sell Agreements;
  • S Election;
  • Contract Drafting
  • Advice on Day-to-Day Operations; and
  • MORE!

Costs to Form Corporations with Sacramento business attorneys

At this time, the Secretary of State filing fees for a Sacramento LLC is as follows: Name Reservation Request $10.00, Articles of Incorporation $100.00 + $15.00 special handling fee, and Statement of Information $25.00.

Attorneys fees tend to vary depending on the complexity of the business entity; but, typically are about $1,500.00.

These are only some of the advantages and disadvantages with a corporation. Give our business law firm a call to schedule your free consultation!

Two New Subtypes of Stock Corporations

If you’re interested in learning more about these two new subtypes, check out the following blog posts:

Limited Liability Companies

Limited Liability Companies

A Limited Liability Company LLC is basically a hybrid of a partnership and a corporation, taking all of the good elements from each entity and leaving the bad ones.  We have listed a few of the positive aspects related to forming an limited liability company LLC below; however, your particular situation may vary and you should contact our LLC attorney for a consultation to ensure you form the best entity for your needs.

Advantages of Limited Liability Companies

  • Limited Liability. Members of limited liability companies may limit any personal liability to the amount of their investment.  Hence, generally speaking, a member of an LLC is not personally liable for any debts or obligations of the limited liability company LLC; therefore, the individual member’s assets like their house and bank account are protected.
    • There are exceptions however, like a court judgment, personally agreeing to be liable, the alter ego doctrine, personal tortious conduct, breach of a fiduciary duty by a manager or director, as well as a few other specific exceptions.
  • Tax Benefits. A limited liability companies with two or more members may elect taxation as a partnership or a corporation.  Taxation as a partnership on both the state and federal levels is generally very beneficial.  The limited liability company LLC will avoid the double taxation related to a general corporation and will not have the restrictions associated with an S corporation, close corporation, or limited partnerships.  A limited liability company LLC also allows for a flexible allocation of income, gains, and losses according to an agreement rather than standard capital interest.
  • Management Participation. Corporations are heavily governed.  Limited liability companies, on the other hand, has much more flexibility and may be managed by members or non-members.  This provides an opportunity to expand the knowledge and specialization of management; thus, establishing a solid foundation for business judgments.

Disadvantages of Limited Liability Companies

  • Corporate Formalities. In order to avoid what is coined “piercing the corporate veil,” the corporation must hold annual meetings, keep meeting minutes, maintain bank accounts, file taxes, maintain a board of directors, keep certain records, and ensure the proper compliance with all legal formalities. This can be tedious, burdensome, and scary for the uninitiated; however, Carson & Kyung can help walk you through all of these formalities.
  • Costs and Expenses. It is more expensive to start limited liability companies than a sole proprietorship DBA. You must pay state, and possibly federal, filing fees. You must also pay withholding taxes and other expenses.

Services Provided for Limited Liability Companies by Sacramento Business Attorneys:

Costs to Form Limited Liability Companies

At this time, the Secretary of State filing fees for a Sacramento LLC is as follows: Name Reservation Request $10.00, Articles of Organization $70.00 + $15.00 special handling fee, and Statement of Information $20.00.

Attorneys fees tend to vary depending on the complexity of the business entity; but, typically are about $1,100.00.

These are only some of the advantages and disadvantages with a limited liability company. Give us a call for a free consultation and let us help you with free advice!  Contact our Sacramento Business Attorneys to discuss Limited Liability Companies for free.


Contact Sacramento Business Attorneys

Interested talking to a business attorney?  Feel free to contact Sacramento’s business attorneys to set up a free consultation for business formations.

Call Us: (916) 241-3336

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Sacramento Business Formation Lawyers