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The First Step In Business Formation: Choosing An Entity

Choosing the right business entity is crucial for every new business. An improper selection can cripple your business before it has a chance to succeed. Our attorneys at Retz & Aldover LLP, have more than 50 years of combined experience working with new businesses and startups and we assist you in building the strong foundation every business needs. We take the time to listen to you, explain your formation options and advise which choices are best suited for your business.

Common Business Entity Choices

Entity choice effects every element of your business. It effects your taxes, how control is exercised over your business (in partnership and multiple owner situations) and exposure to personal liability if the business is sued among other issues.

  • Limited liability companies are a popular choice, especially with small-business owners. They function as a hybrid between a partnership and a corporation. Taxes on income and losses pass through the company to the LLC’s members. LLC operating agreements also determine each member’s role, including handling the daily operations of the business. Personal liability is limited as well.
  • S-corporations also allow taxes to be passed through to shareholders, but may not be used as often as other choices of entity since owners must meet certain IRS criteria in order to make the election as a subchapter S-corp. Personal liability is limited.
  • C-corporations pay taxes, and their shareholders must account for gains and losses on their personal tax returns. This double taxation often makes this entity unattractive for smaller businesses, but the robustness and flexibility of the structure makes sense for larger entities. C-corporation status brings additional paperwork and legal filing requirements. Owners receive protections from liability.
  • Partnerships do not require much paperwork, but they also do not provide personal liability protection to the partners. Each partner pays taxes on income and losses as well.

Counsel For More Than Entity Choice

In addition to choosing an entity, drafting the operating agreement, the articles of incorporation and corporate bylaws or partnership agreement is critical.

These are not mere formalities, but the heart of how your business will operate. These instruments allocate authority and control of the company, provide mechanisms for preventing and settling disputes within your business and identify a succession plan.

The best time to set expectations with clear guidance is at the beginning of a business, when comparatively little is at stake and everyone is like-minded is the best time to set expectations with clear guidance. Once a dispute is brewing, the opportunity is lost.

Forming A Relationship And An Entity

After formation, we can assist with compliance issues going forward. Different entities have specific legal requirements that must be met in terms of filing and documentation. We can help you maintain your status as an entity with cost-effective compliance.

We work with our clients beyond the startup stage, and our foundational understanding of your business means we can help with all aspects of operating your business. We know all businesses are sensitive to legal expenses and we provide efficient outside general counsel assistance for many of our long-term clients. We strive to create that relationship with every client.

Contact Us

Call our Palos Verdes Estates office at 310-540-9800 to schedule an appointment with our lawyers or use our online form.