Lawyer Monthly - September 2023

Overcoming Obstacles in Business Formation When establishing a business in California or the wider United States, it is crucial to be mindful of the legal requirements – particularly the individual state requirements. Experienced business attorney Jessica Zubiate-Beauchamp outlines the differences between business entities and their requisite considerations in this article, in addition to sharing her own experiences of working with clients and the obstacles they have faced in forming their businesses. Expert Insight EXPERT INSIGHT 51 members, officers, partners or directors. For example, a new limited liability company or corporation must properly notice and convene annual member or shareholders’ meetings and record the minutes of the meetings. These formalities are to ensure there is a corporate shield for the individuals running the company to avoid personal liability for the costs or debts of the company. The specific formalities that must be followed and the types of documents and tax elections that must be made, although similar, do have some key differences between entities. Indeed, there are distinct tax differences between partnerships, LLCs, S-Corps and C-Corps that must be considered when trying to form a business. For example, an S-Corp has very specific criteria that must be met and elections to be made to qualify and remain an S-Corp, in addition to being a ‘passthrough’ tax entity where the profits are passed through to the shareholders and taxed individually. On the other hand, a C-corp, which is more common, is not a pass-through entity and the corporation is taxed on its profits typically at a higher rate. Additionally, certain types What are the key legal considerations to be taken into account during business formation? How do these differ between partnerships, corporations and limited liability companies? The key legal considerations to take into account during business formation are (1) choosing the appropriate type of legal entity for the type of business being formed, (2) understanding and following required formalities to protect against personal liability of the members, partners or shareholders, and (3) ensuring you have thorough, well-drafted formation documents that are tailored specifically to your business, legal and tax needs. The number one reason why most of my clients seek to form a business entity is to ensure there is sufficient protection against them being sued as individuals. Every type of entity has specific ‘formalities’ or procedures that must be followed by the forming

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