Starting a Business
Are you starting a business?
Here are some of the key legal considerations we will discuss with you:
- Choice of Entity: Corporation versus Limited Liability Company (LLC) or some other form of legal entity.
- Corporate Tax Election: Subchapter C or Subchapter S for federal and state income tax purposes.
- State of Formation: California versus Delaware versus another state (Nevada?).
- Allocation of Ownership: Founders, Contributors, Investors. What’s the difference between authorized shares and issued shares? How many shares should be authorized and how many issued? How is ownership calculated?
- Founder’s Stock: To vest or not to vest? What does vesting mean and how does it really work? Whom does vesting protect?
- Management: Board of directors and officers. How are these roles different? What requirements must be satisfied?
- Initial Capitalization: How much needs to be invested at the outset In order to maintain the liability shield offered by a corporation or LLC? How important is it to track business expenses separately from personal expenses?
Should you form your own entity or hire a lawyer?
If you’re not a lawyer and you form your own entity, the process will in almost all cases be incomplete and the documents will be substandard. The defects will become apparent if you try to attract outside investment or have a dispute with an employee or commercial partner. Online incorporation services are not law firms and are not licensed to provide legal advice. You receive none of the protection that comes from hiring a licensed professional. You have no attorney-client relationship with an online service. There are simply too many critical decisions and it’s too easy to make expensive mistakes when starting a new company. Engaging a qualified attorney is a small investment relative to the value and importance of the services and the overall cost of starting a new business.
Already form your own corporation or LLC?
If you have already formed your own entity in California or Delaware, we can review the basic formation documents (articles/certificate of incorporation and bylaws for a corporation or articles of organization/certificate of formation and operating agreement for an LLC) and briefly identify serious problems without charge. You can then decide whether or not you should replace those documents (or change type of entity or state of formation) before proceeding. Of course, no lawyer can take responsibility for documents that he or she did not prepare before the documents were adopted and filed.