Entity Formation, Conversation, and Dissolution
If you are considering starting a business, choosing the right legal entity for that business is one of the preliminary steps that must be taken carefully. Some business may start out as a sole proprietorship only to later need the liability protection of a more formalized legal structure. Oftentimes, for businesses starting out, an LLC is the optimal choice when considering entity formation options. With little annual maintenance and a great degree of flexibility and a custom-tailored operating agreement to govern the business’s operation, an LLC can provide the liability protection for your personal assets. Nevertheless, business owners often fail to adhere to the Revised Uniform Limited Liability Company Act (“RULLCA”) and unnecessarily expose their personal assets at risk. Commercial property owners may be able to put the property into a Real Estate LLC and then rent the property from the LLC. With the low maintenance of a regular LLC, these arrangements provide tax and legal advantages to the owner. The Law Office of Richard H. Poulson, serving clients in Alameda, Contra Costa, Solano, San Francisco, and San Mateo counties, will partner with your tax advisor to find the legal vehicle that is most appropriate and advantageous for you.
For businesses that are looking to raise capital and that may wish to have passive owners that do not wish to participate in the operation of the business itself, a close corporation may be the best option. While California’s Corporation Code places more requirements on the operation of a corporation than an LLC, banks, lenders, and other investors often find corporations to be more attractive borrowers. However, many small corporations fail to adhere to California’s statutory requirements regarding the maintenance and operation of the corporation, therefore unnecessarily subjecting the owner’s personal assets at risk of “piercing the corporate veil” by an opposing party or claimant. By having custom-tailored by-laws and a close adherence to California’s statutory requirements, business owners can ensure that any liability exposure of their personal assets is at a minimum.
There are times where a partnership may be the preferred legal vehicle for a business or joint venture and therefore adherence to California’s Uniform Partnership Act is a priority. While easily formed as there are no filing requirements with the Secretary of State unlike LLCs and corporations, an unstructured partnership without clear definitions of responsibility can lead to unlimited liability. A general partner can bind the others to credit card debt, bank loands, or office lease agreements without prior approval. We can help draft a partnership agreement, or a partnership dissolution agreement if necessary, to ensure that the partners personal liabilities are circumscribed.
Choice of legal entity can also affect how you manage, operate, and maintain your business. While some choices can be changed, some changes are harder than others. Tax consequences, particularly with the Tax Cut and Jobs Act of 2017, can favor one for over another as can the need for outside investor (whether banks or private money lenders) or management style of the business itself. Some licensed professions, such as dentists, often form professional corporations or, in the case of lawyers, limited liability partnerships due to statutory restrictions on the legal entities these businesses can take. The Law Office of Richard H. Poulson, an Alameda County business lawyer, can help you identify which legal form your business should take and help you understand what is required for you to maintain the protections that these entities provide. We can further help you convert your business should the need arise and ensure that your personal assets are protected to the full extent allowed by law.