Why Should I Incorporate my Small Business?
Not every small business needs to form an LLC or a corporation in order to function. A child selling lemonade by the side of the road has no use for a Tax ID number, nor does it seem practical to set up a new business entity to host a garage sale or a Tupperware party. As a venture starts to grow from a hobby to a full-time job, however, there are questions every business owner should ask to determine whether it is best to establish a legal entity to own and operate the business. Previously, we’ve talked about when in the process is the best time to consult with an attorney. If you’re thinking of starting a new business, purchasing an existing business, or have questions about how to best structure your organization, the experienced business attorneys at Schneiders & Associates, L.L.P. can be invaluable advisors. In the meantime, here are some important considerations when deciding whether to incorporate.
Do I need to protect my personal assets?
The greater the risk of being sued, the more necessary it becomes to file the necessary paperwork to form a legal entity, whether a corporation or an LLC. This will limit the owner’s financial liability to the assets invested in the business. This means that, if a business gets sued, the business owner’s personal assets, like his or her home, automobile, personal bank accounts, and belongings, may not be targeted by the lawsuit. Common lawsuits of concern are for the satisfaction of contracts and leases and personal injury claims for accidents on the premises. Similarly, a bank may not seek a business owner’s assets to repay a loan unless the business owner signs a personal guarantee. Banks often require such a guarantee for new businesses that have no credit history. Also, the shield of a legal entity will not protect a person from his or her own tortious conduct, such as negligently driving an automobile.
Do I need flexibility in my obligation to pay income taxes?
Legal entities can be set up to provide tax savings and even shift income tax liability. There are tax pros and cons among a C corporation, S corporation or LLC. The experienced business attorneys at Schneiders & Associates, L.L.P., working with your accountant will assist in the choosing of the best tax-advantaged form of business for you.
Do I need to protect my company name?
In California, legal entities register their names with the Secretary of State which helps ensure that only one business can operate under that name. This is important for branding and marketing purposes. Adding Inc. or LLC to the end of a company’s name can also add legitimacy to a new business, thus enhancing the brand.
Do I want to sell all or part of the business?
Ownership of an LLC or corporation can be shifted relatively easily compared to those of a sole proprietorship. Adding partners and selling the business can be difficult if there are no lines between where the business ends and the owner begins. Once a business is incorporated, it lasts until it is dissolved, meaning it continues to be an asset for a business owner’s estate after the individual passes on.
If you’re thinking of starting a business, or if you operate a sole proprietorship and are considering restructuring your organization, it is best to consult with legal counsel early in the process. An experienced business attorney at Schneiders & Associates, L.L.P. can advise about how to best structure your organization, and help you avoid common mistakes made by entrepreneurs. Call our office at (805) 764-6370 or write us at info@rstlegal.com to schedule a consultation with one of our knowledgeable business attorneys today.