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To Incorporate or Not to Incorporate


Choosing the Right Business Entity for Your Startup


Starting a new business can be an exciting and lucrative endeavor, particularly in the Silicon Valley area. While many entrepreneurs are justifiably excited to get started developing or shopping their product, the reality is that there are many important steps involved between getting an idea from concept to execution. One of the most important business decisions facing startup founders is the type of business entity under which they will operate. The various business entities available under California law all have various benefits and drawbacks, and choosing a less-than-ideal entity can leave entrepreneurs with significant personal liability or difficulties in adapting to changing circumstances. For this reason, it is extremely important for individuals who considering starting a business to discuss their situation with an experienced Silicon Valley startup attorney as soon as possible.


Below is some general information about some of the most commonly utilized business entities in California. For specific information or advice call our office today.


·         Sole proprietorships – Sole proprietorships are the most basic form of business entity, and many sole proprietors may not even be aware that they have one. They involve one person conducting business for himself or herself and have no formal filing requirements to create. One of the main drawbacks to a sole proprietorship is that the owner can be held personally liable for any debts incurred in the course of business. In addition, while there are no formalities required by the Secretary of State to form a sole proprietorship, sole proprietors must make sure they comply with various other legal requirements, including business licensing and registering a fictitious business name if the operate under a name other than their own.


·         Partnerships – A partnership involves two or more people conducting business for a profit. Similarly to sole proprietorships, there are no formal registration requirements, and people may be operating as a partnership without even knowing it. By default, partners share equally in all profits and losses of business and are all jointly and severally liable for any debts incurred by the business.


·         Limited Liability Companies – An LLC is often considered to by a hybrid of a partnership and a corporation. Owners are generally shielded from personal liability but may elect pass-through taxation instead of corporate taxation. Forming an LLC is not quite as extensive a process as a corporation, but there are formal steps you must complete. For example, you must register your LLC name with the Secretary of State, file Articles of Organization, appoint a registered agent, file a Statement of Information, and follow all applicable tax laws. 


·         Corporations – A corporation is a business entity that has a distinct legal existence from its owners. As such, corporation owners are generally shielded from personal liability for any debts incurred by the corporation. In addition, a corporation can issue securities in order to raise capital and is subject to laws regarding corporate governance. Some of the drawbacks involved with forming a corporation involve the significant paperwork involved as well as the expense involved in formation.


Contact a Los Angeles startup attorney today to schedule a consultation


Anyone considering starting a business in California should discuss his or her options with an experienced attorney as soon as possible. Nate Kelly is a skilled lawyer who understands the unique issues facing startups and provides commonsense and solution-oriented legal counsel and representation. To schedule an appointment with Mr. Kelly, call our office today at 415-336-3001 or 310-228-6215.