Here are some common questions
about starting a business.
Starting a business
Why do I need to incorporate or form a LLC?
With both a Corporation or a Limited Liability Company (LLC), an owner is not personally liable for the debts or the actions of the business. If you do not incorporate or form a LLC, creditors can come after you personally for debts owed by the business. Both a corporation and LLC also adds legitimacy to your business venture. You will appear more attractive for outside investors, government contracts and future clients. It can also help with taxes depending on the type of business entity chosen.
How many people are needed to start a Corporation or LLC?
You only need one person to start a Corporation or LLC.
Does my business need an Employer Identification Number (EIN)?
If you have a partnership, corporation or LLC, you need an EIN. You should consider an EIN as a social security number for your business. An EIN can be applied for by submitting Form SS-4 to the IRS. This can be done online, by mail or by fax (yes, fax!).
Do I need insurance?
If you have employees, workers’ compensation insurance is mandatory in California. You may also have to provide health insurance based on the size of your business. You should also have a general liability policy and maybe, an errors and omissions policy to further protect you from liability. Your insurance needs will vary depending on your business, your services, and the products you may sell. We recommend that you work with an experienced insurance professional to evaluate your insurance needs.
What else do I need to start a business?
If you are not using your legal name for your business, you will need to get a Fictitious Business Name (d/b/a). You will also may need to register with the City where your business is located for local business tax.
What is the difference between By-Laws and Articles of Incorporation?
The Articles of Incorporation is a document sent to the Secretary of State to start a new corporation. It typically does not have any rules for every day governance of the corporation.
What are By-Laws?
By-Laws are a set of rules that govern the day to day actions of a corporation. Under California law, every corporation is required to maintain these by-laws at their principal office. These rules include the responsibilities for Officers and Directors, number of directors required for the corporation, voting procedures and how meetings are to be called and conducted.
What is a S Corporation?
A S Corporation is a type of tax classification for your corporation. When you initially incorporate, you will be classified as a C Corporation. With a C Corporation, you will be subject to double taxation. Any profits will be taxed at the corporate level and then the shareholders (the owners) will again get taxed. By electing to be a S Corporation, you can avoid double taxation and all profits or losses will pass through directly to the shareholders. With a SCorp, there will be no company level taxation.
How do I qualify for a S Corporation?
In order to qualify as a S Corp, your company is required to have the following:
- No more than 100 shareholders;
- It cannot be a “foreign” corporation, your company has to be formed in the United States.;
- All shareholders must be US Citizens or legal residents;
- All shareholders must be individuals or trusts. A shareholder generally cannot be another corporation, limited liability company (LLC) or partnership; and
- Your corporation can only have one class of stock. You cannot have classes of shares like “preferred shares.”
If your corporation does not fit under these requirements, you will not be eligible for S Corporation status.
Does my Corporation need to have meetings?
Yes. Under California law, every corporation must have an annual shareholders meeting. In addition to the shareholders meeting, an annual board of directors meeting is usually held. Some corporate actions can be done without a meeting. Written records should be kept of all corporation actions, meetings, and consents.
What is a Buy-Sell Agreement?
A Buy-Sell Agreement is a contract between the owners of a company that manages the owner’s interest if the owner wants to sell, dies, is disabled or other events have occurred (e.g., bankruptcy, divorce). With a “Buy-Sell,” the other owners, or the company, can buy back that owner’s interest. If the company is a corporation, the buy-sell language is sometimes added to a Shareholders Agreement.
What is a Shareholders Agreement?
A Shareholders Agreement is a contract that outlines the relationship of the shareholders to the corporation. It can cover additional items not included in the By-Laws, from corporate management, transfer of shares, rights of first refusal and “Buy-Sell” provisions.
What is a Limited Liability Company?
A Limited Liability Company (LLC) is a hybrid between a corporation and a partnership. With a LLC, you have the personal liability protection of a corporation with the less formal structure of a partnership. The owners of a LLC are called Member or Partners, not shareholders. Instead of owning stock (like a corporation), a LLC member owns “membership interests” or “units.” With a LLC, the owners can also choose to distribute profits differently than their ownership interest.
Is a LLC required to have meetings?
No. An LLC is not required to have meetings. Many owners of LLCs choose not to have regular meetings and agree to that in their Operating Agreement.
What is an Operating Agreement?
An Operating Agreement is an agreement between the LLC members that describes various rules including: the owners’ rights and percentage of ownership in the LLC, allocation of profits and losses, management and operations.
What are Articles of Organization?
Articles of Organization are similar to Articles of Incorporation. It is the first document submitted to the Secretary of State to form your new LLC. It has very limited information such as your LLC name, address and agent for service of process.
As a LLC or Corporation, what taxes will I have to pay?
On any revenue your company makes, your LLC or Corporation may be subject to income taxes at the federal, state and local level. The California Franchise Tax Board requires payment by your LLC or corporation of a minimum tax of $800 per year. This tax is mandatory whether or not your business makes any money. Your LLC or corporation may also be responsible for various sales taxes, use taxes, property taxes and employment taxes. You should consult with your tax advisor to ensure that you account for all tax payments.
What is a Statement of Information?
If you have a corporation or LLC, a Statement of Information is a form that is filed with the State of California. If you have a corporation, you must file a statement each year. For LLCs, you need to file this form every two years. The Statement will contain basic information on your company including your address, the identity of your officers, managers and contact information for your agent of service of process. If your company’s information changes before a statement is due, you must file an amended statement with the State.
What is an Agent for Service of Process?
If you form or register a corporation or LLC in California, you must have a registered agent for service of process. An agent for service of process is an individual or corporation that is required to receive, on your behalf, lawsuits, legal claims, legal notices or tax notices. Your registered agent is listed in your company’s articles of incorporation, articles of organization and statement of information. The contact information for your agent is also provided on the Secretary of State’s website.
How long does it take to form a LLC or Corporation?
On average, it takes about 3-4 weeks. The process can take longer if there is a delay with the State of California or if the owners are negotiating terms for their agreements. If you are in a rush, we can expedite the formation by paying an extra fee.
Can’t I just form a Corporation or LLC by myself, online?
Yes you can. However, online websites that form corporations or LLCs often offer generic and basic materials with little to no guidance. Most of the materials have to be completed and submitted by you. The corporations and LLCs prepared by our office are attorney prepared. You have a lawyer who customizes the corporation or LLC to fit your company’s needs, mission and vision. You do not have to worry about whether you are “doing it right,” as all legal documents will be prepared for you. You get the comfort of knowing that you are starting your business on the right foot. You also will have an attorney on your team you can contact to ask questions about your company.
How does your fee structure work?
We bill our clients hourly or on a flat fee. For projects where it is more difficult to know the actual time that will be spent (for example, negotiation of a business purchase), we will bill by the hour. For other projects, such as forming a corporation, we will generally charge a flat fee. Before we begin any work on a flat fee project, we will quote you a fee.
Do you bill me for everything?
Unlike other law firms that bill for every client contact, we choose not to bill on every phone call, email or communication. If the phone call or email is short, we will not charge you. As with everything, there are exceptions. If there is a lot a time spent on a number of “short” emails back and forth, we may charge you. Our philosophy, however, is to keep communication open with our clients. We want you to reach out to us! We do not want you to avoid calling us because you are afraid you will receive a bill for a two minute conversation.
How do you bill me?
We send all our bills by email. You have an option to pay your bill online, by credit card or by check.
Can I work with you if my business is not in Southern California?
Yes. Although our main office is located in Southern California, we have a lot of clients whose business is located in other parts of the state. From San Diego to San Francisco, our clients span the length of the state of California. We even represent out of state companies, including international companies, who started businesses in California. When we are unable to meet our clients in person, we use various technological tools such as: GoTo Meeting, Zoom, Skype and Facetime for our meetings. We have held many board meetings, by GoTo Meeting, where board members are located in different states or are out of the country. With the wealth of technology out there, geography is not an obstacle to getting the work done.
How can we get started?
Please contact us here, call us at (818) 539-2245 or email us at firstname.lastname@example.org
We would love to work with you!
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