Setting up a CA Corporation, LLC, or Professional Corporation

Legal & Tax Help for New Businesses - by Experienced San Diego Attorneys

San Diego Law Firm provides skilled, highly experienced legal services for setting up new California businesses, including CA corporations, LLC's, and professional corporations. We offer sound advice to help you choose the business structure that will offer you the greatest protection and tax advantages to help you meet both short and long-term goals.

Benefits of Incorporation or LLC

Corporations and limited liability companies (LLC's) have slightly different rules and benefits. We will help you pick the one that's right for you.

Incorporating

Protect Your Personal Assets.  If the corporation obtains sufficient insurance and / or assets to satisfy potential liabilities, the owner is generally protected from any personal liability for the company's debts.

Employee Fringe Benefits.  Once incorporated, business owners who work in the business can receive certain tax-free or tax-advantaged fringe benefits, including company-paid health insurance and pension plans.

Tax Advantages.  Depending on your business situation, it may be possible maintain the benefits of corporate status, but be taxed as a partnership by electing to be an “S-Corporation” for federal income tax purposes.  While a "C-Corporation,” pays taxes on any profits remaining in the company after salaries and benefits are paid, all income will “pass through” an "S-Corporation" and be taxed only individually to the corporation's owners.  An S-Corporation cannot retain profits; whether this is desirable or not depends on your particular business goals and the potential future needs of the business.

Perpetual Existence.  A corporation continues to exist even if an owner dies or decides to leave the business, so it can be sold as a separate entity.

Financial Incentives.  Incorporating can make it easier for you to secure financing, raise capital, and sell part or all of the business.

LLC

Protect Your Personal Assets.  As with owners of a corporation, the personal assets of LLC owners can be limited from liability for business debts, including lawsuits. 

Tax Advantages.  An LLC automatically avoids the "double taxation" that occurs when a corporation pays taxes on income, then pays taxable dividends to the shareholders. All profits and losses to the LLC are instead reported by LLC owners on their individual income tax returns.  Additionally, profits and losses do not have to be tied to ownership percentage, and can instead be allocated by agreement. This may be helpful if you are selling a portion of the business to a new owner, and wish to allocate a gradually increasing share of the profits to that person.

Flexible Management Options.  An LLC offers greater flexibility in management than a corporation. This can create more business efficiency. 

Avoid Many Corporate Formalities.  LLC's require fewer ongoing corporate legal formalities, such as annual meetings and the keeping of minutes of board meetings.

Differences between Corporation and LLC

Business Ownership.  A corporation is owned by its shareholders. Stock issued by the corporation is subject to securities laws, although most small business corporations qualify for a strict exemption.  An LLC's owners are referred to as “members,” and ownership interests are generally not subject to securities laws as long as all members are active in the business.

Decision making.  In a corporation, management decisions are made by the Board of Directors.  In an LLC, members have decision-making authority, unless the LLC has chosen to be run by managers.  A manager may be an outside hire or can be one of the owners.

Transferability of Ownership Interest.  With corporations, your ability to transfer your stock may be limited by securities laws, or by possible restrictions in the Articles of Incorporation or Bylaws.  S-Corporations are further limited due to tax qualification requirements.  In contrast, to transfer your ownership interest in an LLC, state law or the Operating Agreement may require the unanimous consent of the remaining owners, or consent of a substantial percentage of those owners.

Taxation.  A corporation pays taxes on its profits at the corporate tax rate, and owners pay taxes on profits paid to them as dividends, salaries, and bonuses, for example.  The profits of an S-Corporation or LLC are generally taxed only at individual income tax rates.  In a C-Corporation, owners who also work as employees can receive tax deductible fringe benefits and deduct all medical insurance premiums.  If S-Corporation status has been elected, owners are often limited regarding corporate fringe benefits.  If an LLC has been formed, the benefits an owner receives depends on whether the LLC is treated as a partnership or corporation for tax purposes.

Business Debts.  Generally, a corporation incurs liability for its business debts by the actions of its directors and officers.  An LLC's business debts are incurred by any of its members, or by its managers if the LLC is run by managers.

Business Formalities.  A corporation requires annual meetings and minutes of its meetings.  An LLC usually does not require meetings, although an operating agreement is required. 

Startup Investments.  A corporation is financed by its initial shareholders, and S-Corporations are subject to limitations on its classes of stock.  An LLC is financed by its members, and a promise to perform services for the business or contribute cash in the future can be considered an investment.

Sources for Raising Capital.  A corporation can raise capital from several sources, including outside investors, and can possibly become a publicly traded corporation.  An LLC's members may contribute capital, or obtain bank loans which may be secured by the member's personal assets, depending on the LLC's credit history.

How San Diego Law Firm Can Help

When you hire the experienced attorneys of San Diego Law Firm to form your corporation or LLC, we will do the following:

• Make sure a corporation or LLC is workable for you. Both corporations and LLC's require some yearly work which we will explain to you.
• For a corporation, we will take all legal steps needed, including the following:
  • Confirm that the name for your corporation is available in California, and reserve it for you. We will also make sure that the name you choose does not violate California law on what types of names and words may be used in a corporation - for example, we check to make sure that your name is not one that will be easily confused with that of an existing corporation.
  • We will prepare your business's Articles of Incorporation in accordance with the applicable California law and your specific business needs, and file the Articles with the Secretary of State.
  • We will draft the bylaws under which your business will be managed, while making sure that the bylaws foster your business interests.
  • Ensure corporate stock is properly issued, and provide you with corporate stock certificates.  We will also identify any exemption from securities laws that your business may qualify for, and file the applicable disclosure documents with the Department of Corporations.
  • Obtain the required federal and state employer tax identification and account numbers so you can operate your business and open a corporate bank account.
  • Provide you with the necessary official corporate record and minute books to ensure corporate formalities are followed.  This is vital to preserving corporate status, which helps keep your personal finances and your business protected.
  • We will also handle the registrations, business licenses, and local permits that you may need to lawfully operate your business.

• For an LLC, we will take all legal steps needed, including the following:
  • Confirm that the name for your LLC is available in California and that it complies with California's strict laws, and reserve the name for you.
  • We will prepare the Articles of Organization in accordance with California law and your business interests, and file the Articles with the Secretary of State so that your LLC is properly organized and will effectively limit your personal liability.
  • An LLC requires an Operating Agreement, and our experienced attorneys will ensure that your agreement closely reflects your business goals.
  • Evaluate your business and objectives to help you decide whether the LLC should be taxed as a partnership or corporation.
  • Advise you on how your business interests can be aligned with the allocation of profits and losses among multiple owners.
  • Provide you with membership certificates and record books specifically for your LLC.
  • We will also make sure your business complies with state, local, and federal laws by seeking the appropriate registrations, licenses, and local permits.
  • File your LLC's initial report and fulfill ongoing periodic reporting requirements with the Secretary of State, as well as inform you of the $800 minimum tax fee and tax deadlines applicable to LLC's.
  • Obtain the required federal and state employer tax identification and account numbers so you can operate your business and the LLC can open a bank account.

Professional Corporations

California law permits licensed professionals, including doctors, dentists, veterinarians, accountants, and lawyers, to form professional corporations for their practices.

California licensed professionals cannot form regular LLC's, however, a business structure such as a professional corporation can help protect you from personal liability for your business' debts, such as lawsuits.  Professionals can also form Limited Liability Partnerships, also discussed on this site.

These professional corporations are subject to additional rules, including the following:

• The professional corporation must possess a current certificate of registration issued by the appropriate governmental agency;
• Only licensed professionals may provide professional services, although your PC may have non-licensed employees as long as those employees do not provide professional services;
• Only licensed professionals in the particular field can be shareholders, officers, or directors, and owners must abide by restrictions regarding the transferability of their shares;
• Professional corporations must provide adequate security for claims against it, such as with insurance; and
• Professionals must comply with rules or regulations relating to professional conduct.

If you are a California licensed professional, we can set up your professional corporation in the proper form for you, and draft Articles of Incorporation that satisfy California legal requirements.

How to Contact San Diego Law Firm

We handle matters throughout California, and new clients are always welcome. For more information or to make an appointment, please contact us either by:

Telephone: (619) 794-0243

E-mail: contactus@SanDiegoLawFirm.com
 

We can be reached by telephone Monday through Friday, 9:00 a.m. to 5:00 p.m. You may also use the form below to contact us. This form is answered Monday through Friday during the work day. Please remember that for us to become your attorneys, we must first have a written attorney-client agreement signed by both of us, so please do not email any confidential information at this point. After we have reached an agreement with you, we can then exchange information freely. We look forward to helping you.

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