Your Business Legal Structure Is Showing

Setting up your own business? The first thing you will need help with is the kind of legal structure that will best suit your needs.

While it might seem like a straightforward thing to do – setting up a company – there are a lot of options that you may choose from and that becomes confusing without the assistance of a Sacramento business lawyer. This is even more essential if you don’t happen to have a lot of experience running or setting up a business.

The bottom line is that you might be really surprised to discover the various options you do have, each with differing tax consequences that will directly affect how you raise capital. Hang on for the ride and talk things over with a highly qualified Sacramento business lawyer, so you can get on with the business of doing business in a manner that is profitable.

The least complex arrangement for businesses happens to be sole proprietorships, and with an added bonus, they are also the least expensive legal entities to set-up. If you opt for a sole proprietorship, what you have is a company that is unincorporated and only owned by “you.” Being a sole proprietorship means you are not a distinct legal entity, so guess what, you don’t file annual business taxes, as they are incorporated into your annual personal income tax filing.

Another nice benefit of sole proprietorships is that the tax rate on your earnings is usually lower than the income of a corporation. Really though, this particular legal entity is mostly for solo owners and consultants, etc. It is not suited for a business with more than one person or for one trying to source capital from “Angel” investors. There is one thing you should be aware of as it relates to debts incurred during the operation of the business. Sole proprietors face unlimited liability for any debts. This is just one of the reasons you need to consult with a skilled Sacramento business lawyer.

If you’re setting up a business with two or more people, this would be classified as a partnership. A partnership is an unincorporated venture and is also not a distinct legal entity. Any profits or losses in this situation are included in the partner’s personal income taxes and then billed according to the “Articles of Partnership.” In this instance, there is a contract between the partners.

When it comes to divvying up the losses and/or profits, the “Articles” kick in and outline how this is to take place. They also settle on a partnership name, date of partnership formation, the length of the partnership, and how any disputes are to be handled, should they arise. While this may not sound too bad on the surface, there are some drawbacks which need to be thrashed out with your lawyer. For instance, partnerships aren’t very helpful raising investment capital and they face unlimited liability for the all the debts of the total partnership. Put another way, if one partner can’t meet an obligation under the “Articles,” the others are then liable for the obligation.

Something else that not many people are aware of is that if you form a partnership, the actual business entity – the partnership – is limited to the physical lives of the partners who formed the company.
This is a lot of information to absorb as you are trying to set up a business. Make sure you consult with a fully qualified and expert Sacramento business lawyer to find out what your options are and how they will benefit you before making any decisions.

Deborah Barron is a Sacramento business lawyer, Sacramento employment lawyer, and Sacramento winery lawyer in California. To learn more, visit Lawbarron.com.