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A new business is far more likely to succeed if you follow the law at each step. Below are just a few of the legal considerations that should be a part of starting and running your new business.
The Legal Structure: LLC or Corporation?
Setting up your business as a Subchapter C corporation, a Subchapter S corporation, or a Limited Liability Corporation (“LLC”) can protect your personal assets from business creditors in almost all situations, so long as you did not defraud or intentionally harm someone else. A good business attorney can help you decide which type of corporation would work best for your business, and prepare all the paperwork you need to incorporate.
An LLC has few administrative requirements. The owners do not have to elect a board of directors, elect officers, hold annual meetings, or make annual filings, and an LLC can be owned by just one person. LLC’s are therefore very popular with beginning entrepreneurs.
LLC’s and Subchapter S corporations both “pass through” their income to their owners’ tax returns, avoiding corporate income tax. A Subchapter S corporation is often used in a family-run business that needs more access to credit than an LLC usually provides, and that needs to continue uninterrupted if one family member/owner dies or becomes incapacitated.
A Subchapter C corporation is the only type that can provide extensive, tax-free fringe benefits to the owners. A C corporation also permits the owners to leave profits in the corporation, where they are taxed at a low corporate rate, and keep them there until the business is sold. If you set up and then sell a “C” corporation, your total profit on the sale of your small business stock may qualify for the low capital gains tax rate. The disadvantage to a Subchapter C corporation is that profits that are distributed to the owners as dividends (rather than salaries) are taxed twice: once on the corporation’s return, and once on the owners’ returns.
Hiring Employees:
Sooner or later, you may find your business needs one or more employees. As a California employer, you must follow all employment and labor laws in hiring employees, setting their schedules, providing a safe workplace, and more. You will also want an employee handbook, specific to your business, that explains your business policies and procedures to your employees. A carefully prepared and enforced handbook can help you communicate all the information you are legally required to provide to your employees, list out the other material (such as a brochure on worker’s compensation) that all new employees are legally required to receive, and avoid later lawsuits for discrimination, harassment, or labor law violations.
Zoning:
It’s important to know whether zoning laws permit or prohibit your business from operating in your chosen location. Just because previous tenants operated the same type of business doesn’t necessarily mean that you, as a new tenant, will be permitted to open a similar business in the same location. The other business may have been “grandfathered in,” and your business may be treated differently. Zoning laws should always be checked before you buy or lease business property, or start up any business in your home.
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Taking the right legal steps when starting and running a new business can protect your livelihood and help ensure your long-term business success. Our experienced San Diego Law Firm business attorneys provide skilled assistance to all types of new and ongoing businesses. Please call us at (619) 794-0243 to schedule an appointment. We look forward to helping you.
