Business Formation and Protection of the Corporate Shield

I am often asked why it is important to hire an attorney to help set up your new company and to advise you as you start up your business and build it into the future. Many entrepreneurs mistakenly believe that all they need to do is download a form and register with the State of California, get a Federal Tax ID and “you’re in business.” Selecting a business entity – an LLC, an S-corp a C-corp or other form of Corporation – is an important decision that will affect not only the initial cost of getting started, but the amount of the earnings you will be able to keep due to tax considerations. Many start up business professionals don’t understand that the primary purpose of the business entity is not just to establish an identity for your company, but to provide specific legal protections to the principles involved.

The choice of the specific entity is based upon several factors including:

The number of individuals involved

The contribution and nature of contribution by the individuals involved

The distribution of income and tax advantages gained by the new company

The risk factors of the parties involved, and the liabilities each is to assume under the new entity

The “repayment” expectations related to invested capital

The operational nature of the business itself

Whether the venture is for profit or non-profit

The establishment of authority and decision making powers

Whether additional shareholders or partners might be added in the future

There are Additional Issues That All New and Existing Businesses Must Consider

In my experience, most entrepreneurs do not give enough weight and consideration to what might happen down the road, and how that affects setting up their business today. Effective corporate documents must address what will happen in the event of:

A dispute between the principals or partners

A divorce, marriage or death of one of the principals

Disassociation – what happens if one of the partners needs to exit the business (how will their share be valued and how will that value be conveyed)

Addition of additional investors, partners, key employees

Protections relating to marital interests (community property, etc.)

Expansion of the business entity or franchising

Ongoing operations and compliance issues

Business and Corporate Compliance

Compliance relates to adhering to all local, state and federal laws and the specific requirements these impose upon your new company. In all corporate structures (even in a the most basic LLC) there are many specific actions that must be regularly observed, recorded and executed to protect the corporate entity itself. This is known as the “corporate veil”. The corporate veil is the protection that the business entity provides to its principals and investors. If you do not comply with these requirements, and a dispute arises (internally or externally) the challenger can often successfully “pierce” the corporate veil legally exposing you, your assets, your family and all of your work and the very business itself to liability and perhaps survival of the business itself. It is important to take a few moments at the outset of your business to work with a professional who can help to understand and plan for all of the potential opportunities and liabilities your business will face, while counseling you on how to maintain and protect the corporate veil.

Contact a Business Start-Up and Corporate Compliance Lawyer

If you are considering starting a new business, or you have an existing business and have failed to take the appropriate actions to protect your corporate veil I invite you to  call 951-784-0244 to schedule a free initial consultation. A corporate structure is all about protecting yourself and the hard work that you have or will put your business. It’s worth your time to contact me to understand these ramifications, and how I can you to succeed.