Why the Legal Structure of Your Startup Should Be Reviewed by a Lawyer

July 15, 2020

You have suddenly discovered a new business opportunity, and you feel that you cannot wait much longer to launch your dream venture. Not so fast, though. Have you contacted a…

You have suddenly discovered a new business opportunity, and you feel that you cannot wait much longer to launch your dream venture.

Not so fast, though.

Have you contacted a startup business lawyer yet? One of the most important steps you need to take as you launch your startup is to implement the appropriate legal structure.

What is most important to keep in mind, is this crucial step should be left to a legal professional. A small business lawyer in San Jose can help you to create and define the best structure for your business and components.

Here is a rundown on why a startup lawyer is crucial for success, and how a San Jose business lawyer can help you to start your business off right.

Let’s get started!

A Small Business Lawyer in San Jose May Tell You to Wait to Set Up an Entity

If you are just starting your business, having a lawyer review your situation is wise, as you may actually not need to set up a legal entity just yet.

Council may suggest that you delay setting up a legal structure in a couple of situations.

For instance, maybe you are the sole founder of your business and have not engaged in any business activities yet. Perhaps you have co-founded your business with another person or with two people but are still operating on a small scale.

Not having a valuation showing what you feel is its potential; you may not need to set up a legal structure at this point, until that can be factored in the decision.

A San Jose Business Lawyer Can Advise You on When to Start Setting Up an Entity

When exactly should you set up a legal structure?

The reality is, not having a structure can cause you to face penalties and unanticipated taxes due to, for example, classifying your workers incorrectly.

Also, let’s say that you are thinking about raising capital for your venture. Your San Jose small business lawyer may advise you to set up your entity right away. Otherwise, you might run into tax risks when you start issuing shares to your founders.

As a general rule of thumb, a lawyer can tell you when your activity level creates enough of a risk to warrant establishing a legal entity.

A Startup Lawyer Can Keep You from Choosing the Wrong Structure for Your Situation

The legal structure of your startup should be reviewed by a small business lawyer because the attorney can tell you which structure is best for you give your current and future goals.

Limited Liability Company

For instance, your startup business lawyer may recommend a limited liability company, or LLC, structure for you. This structure allows you to limit your personal liability as the owner of the business.

In other words, if you do not act in an irresponsible, illegal, or unethical manner when carrying out business activities, you are protected from liability for the business’s debts. Your shareholders and partners can also enjoy this benefit.

With an LLC, you can also enjoy flexibility and tax benefits.

Sole Proprietorship

A sole proprietorship may be ideal for you if you are interested in being your own business owner and working from home. In this situation, you will assume responsibility for all of the business’s debts and profits.

The disadvantage of a sole proprietorship is that it does not provide for the protection or separation of professional and personal assets. This lack of separation may become a challenge for you as your company grows.

Partnership

A business startup lawyer may recommend that you move forward with a partnership business structure if you are interested in starting a company with a business partner, family member, or friend.

With this structure, you can share losses and profits. In addition, you can make decisions collaboratively within your business structure.

Corporation

A startup lawyer can also evaluate your current situation and determine if a corporation is the best legal structure for you.

With a corporation, the business entity will be separate from you and any other owners. The entity will have its own rights and be able to sell and own property. Likewise, it may be sued independent of the owners.

A lawyer might suggest this structure if you are relatively far along in your growth. For instance, maybe you have already given your business a name and appointed directors for it. In addition, you might have already raised capital via shareholders.

At this point, you can become incorporated. However, you may also opt to file as an S corporation, as this offers many tax benefits.

How We Can Help

If you are starting a business, we offer top-tier guidance from a leading small business lawyer in San Jose.

A San Jose business lawyer from our firm can help you to determine the best time to establish an entity for your startup business. In addition, a business lawyer in San Jose can assist you in choosing the structure — for example, an LLC or a corporation — that best fits your current situation and future needs.

Get in touch with us today to learn more about how a startup lawyer can put your venture on the path to success in the months and years ahead.

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