Choosing a Legal Structure for your Business Start-Up

businessman sitting at a table at homePutting the Basics in Place Starting a Business

Types of Business Models for Startups and Small Businesses

Every business licensed and operating legally must have a defined entity or form. This is commonplace knowledge one will always get from San Francisco business attorneys when asked. They range from the most basic, a sole proprietorship to complicated corporations. Nonetheless, form is always present. Not only does it help define how the business operates legally, but it can also separate the business from one’s personal status, which can be beneficial if there are problems down the road. Otherwise, a business owner could find their personal assets getting tied up in liabilities the business is responsible for in a dispute.

What are the different legal structures to choose for a business start-up?

The basic business form categories available start with the smallest, a sole proprietorship. This is essentially a single business owner and the default for most startups when they begin. Then comes a limited liability corporation or LLC. The LLC allows a legal separation from the owner’s personal value and creates a business as its own entity. However, if an owner is involved in everything in the business, the protection isn’t very reliable in court, ergo the myth of once a business is a corporation the owner is fully immune from risk (not true).

Next is a partnership. A partnership involves multiple players who agree to run a business together with different rights and ownership shares. Partners can sell out their positions and add new partners as time goes by. Partnerships are very effective in detailing the interests of parties who align in terms of business but want to keep everything else separate. It’s a model regularly used by professionals such as doctors, lawyers, engineers, and similar who want to leverage their business skills together for more business but still want to keep their caseload and accounts individually controlled.

Finally, there is a corporation, running the business with a board, a set of bylaws, and defined executive officers. Most big companies operate in a corporate model.

How to choose the best for your business?

The best model, asking any San Francisco CA business attorney, depends on where a given business is currently and where it is going. The sole proprietorship model is the easiest and takes the least amount of work to establish (just a business license, business bank account, and Schedule C tax filing) but legally, it is the most vulnerable, being tied directly to the owner personally.

Many startups and small businesses shift to LLC or partnership models when they can, frequently due to having a team sharing ownership and the initial build of the company versus just one individual.

Corporations may seem far more professional and give the appearance on paper of being an established entity for bidding and sales, but they take a lot of work and require more technicalities, according to business attorney San Francisco’s perspective. If a business is not ready for that, it could be a mistake. There are also significant filings that must be made with various government agencies, especially if the corporation wants to seek outside investment in exchange for ownership shares. Working with a business lawyer in San Francisco can help if guidance is needed.

What questions should you ask or answer about what you want for the business?

One of the best places to start if considering a business type is with a San Francisco start-up business attorney. Among the options available, Attorney James M. Braden has a considerable amount of experience and local knowledge operating in San Francisco County as well as California in general. While starting a business with a San Francisco business lawyer is not a requirement, it’s a very good way to avoid rookie mistakes. Lots of avoidable risks and preventable problems can be side-stepped with the help of a business start-up attorney in SF and doing things right the first time.