Tips for New Entrepreneurs: Forming a Business Entity

Entrepreneurs opening up a new business will quickly run into the challenges that face small business owners on a daily basis.  The Griswold Law Blog will be posting a series of articles intended to address some of the obstacles that come along with running your own business.

The decision whether to form a business entity and register with the Secretary of State should be one of the first items to consider.  The most common entities for profit-oriented businesses in California are corporations and LLC’s.  There are many reasons to consider forming a business entity:

1.       Tax status - There may be tax benefits involved with registering your business as an LLC or corporation, including avoiding double taxation on profits and deducting business  or employee-related expenses.  It’s important to note that tax laws vary from state to state AND year to year as laws expire or are amended.  Also, there are differences between tax rules for corporations and LLC’s.  It’s important to discuss which option could be most beneficial to your business with a CPA or tax lawyer.

2.       Avoiding personal liability – By forming a business entity, the business partners are protecting their personal assets by keeping all corporate activity completely separate from their personal lives.   In most cases (and so long as the business entity is properly set up), the business owners will not be liable for the company debts or judgments.

3.       Anonymity – Corporations can provide a level of anonymity for owners.   If you do not wish for your name to be attached to your business publicly, you might consider incorporating.

4.       Long-term set up– When a business entity is formed, it will continue to exist as long as it is properly renewed with the Secretary of State when required (this usually requires filing an annual or biannual “Statement of Information”).  This means the company can continue to do business even after the founder retires or passes away.

5.       Credibility – By forming a legal, business entity, your business gains a certain amount of credibility when new clients or potential partners are researching you.  I am not claiming that merely having an “Inc.” or “LLC” attached to the end of your business name will guarantee instant consumer confidence- but it sure does not hurt to sound professional, especially when you are just starting out.

Be on the lookout for future articles of interest for entrepreneurs and new business owners!

For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or
Check out our other articles regarding asset protection and business formation here.

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