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The business structure you select for your start-up can make all the difference when it comes to its success and longevity. Having a defined structure makes a company more appealing to potential investors. The type of entity you choose also determines your tax rates and dictates your day-to-day operations. In addition, the legal structure of your company can be crucial in limiting your liability in the event of litigation.
It’s important to choose carefully when it comes to a business formation for your startup. While it may be possible to convert to a different structure in the future, this can sometimes result in unintended consequences for you and your company.
A business structure, also referred to as a business entity, is a legal classification that determines how a company is operated and regulated. Choosing the right formation from the outset of your business venture is critical as it can affect many of the decisions you will need to make. Because each type of entity involves different tax ramifications and various levels of liability protection, you should choose the structure that meets your company’s needs.
The first thing you should do when it comes to selecting a structure for your start-up is review your business objectives. There are several different business formations from which you may choose, depending upon your professional and financial goals. Significantly, you should consider the following issues before selecting a start-up business structure:
No two start-ups are identical. Every owner has their own organizational, economic, and personal goals for their company. The right structure for your start-up should offer adequate protection from any liability to which you might be exposed — and provide for the stability of the business.
There is no right or wrong when it comes to selecting a legal entity for a start-up. Each business structure comes with various pros and cons. But no matter the size of your company, it’s vital to make sure you choose a structure that is beneficial for the needs of your growing business.
The most common business entities for start-ups include the following:
The decisions you make early on for your start-up can have an impact on its success in the years to come. Not only should you choose a structure that safeguards your personal assets, but one that also allows your company to grow and expand.
Forming a start-up can be exciting — but it might also feel overwhelming. An experienced business attorney can discuss the strengths and weaknesses of the various entity types with you to determine the most advantageous start-up business structure for your company. At White and Bright, LLP, we work with business owners, start-ups, and entrepreneurs in California for a wide variety of business formation and litigation matters. We welcome you to contact or call us at (760) 747-3200 to learn more about our legal services.
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