California Business Lawyer

We know that the right type of entity can make or break a startup. You need to know the right balance between liability, taxes, and other factors in order for everything to work out well - which is why our team has years' worth of expertise on this subject! Let us help you decide what would be best suited based off some common questions surrounding each option. The first step when launching any business venture into outer space? Selecting an appropriate legal form such as Corp., Ltd., Partnerships etc.… There’s no single “correct" answer here; different entities offer advantages depending upon how much money/risky investments people are looking to take on.

One of the main reasons that people invest in early-stage startups is because they offer a great opportunity for returns. This means that those who put money into these businesses stand to make some serious profit if their investment pays off later down the road; especially when you take into account all types of legal protection offered by C-Corps which has been established over time based on what was appropriate at various points during our history as well laws surrounding them today--this predictability helps encourage investors with ideas or plans about starting up shop but not knowing where to start!

C-Corps can be a cumbersome navigation when the law is complicated and there are relatively few shareholders. In addition, C-corp dividends are "double taxed" - meaning that as an entity they must pay taxes on any earnings which go towards paying out profits in dividends or salaries; but those same funds would also suffer another layer of taxation if investors receive them directly instead through compensation packages made up mostly from stock options exercised at market price during periods where shares rise dramatically (and often times beyond what was original cost).

The Articles of Incorporation function as the business’s charter, outlining its basic information and governance structure. This includes an initial stock authorization for shares to be issued by defaulting creditors with no action taken on their behalf within one year after formation - this is known formally in corporate law circles as “writer-up procedure." The certificate also identifies which laws will apply if there are any disputes between parties operating under different legal systems like state vs federal etc.

The Bylaws, in combination with the Articles of Incorporation, set out the mechanisms by with the business runs; when annual meetings are, how shareholder voting works, and how business decisions are made, among other things. The Director’s Initial Resolutions and Shareholder’s Initial Resolutions ratify the procedures that went into incorporation, list the initial corporate officers, and allocate the stock authorized by the Articles.

Two more documents do not need to be filed with the Articles, Bylaws, and Initial Resolutions, but are just as pivotal for a startup to have. The Shareholders’ Agreement lists the rights and obligations for the company’s shareholders; it describes how shares are priced and transferred (or restricted from transfer), and is a method for ensuring civility among a startup’s initial shareholders through listing clear procedure and providing methods of dispute resolution. Finally, small and privately owned C-Corps might use a Subscription Agreement to facilitate a sale of stock with a specific private investor, and the accompanying terms governing price, quantity, confidentiality, and return on investment.

S-Corporations operate in most ways indistinguishably from a C-Corp. The defining feature of an S-Corp is that its shareholders have filed a federal election with the IRS to alter how they are taxed. Rather than face double-taxation, S-corps elect to have their profits “flow-through” the corporate entity directly to the shareholders. In this manner, earnings of an S-Corp are only taxed once they reach the shareholders as profit. Startups considering filing as an S-Corp should note that, to properly file as an S-Corp, they may need to file an S-Corporation election with the Department of State of their respective State in addition to the same filing with the IRS.

The limited liability company, or LLC, is a relatively new entity in comparison to the C-Corp, but has become a very popular entity for startups because of its flexibility. An LLC combines the limited liability of a corporation with the taxation structure of a partnership. This means that its owners (called “members”) are insulated from the LLC’s debts, while any profit the LLC makes is “flow-through,” similar to an S-Corp, by default.

LLCs are created by the prospective members filing Articles of Organization with the Department of State. The Articles of Organization lists the LLC’s basic identifying information. While initial resolutions are not mandatory for an LLC, it is good practice to to file accompanying Members’ Initial Resolutions and Managers’ Initial Resolutions, formally ratifying the Articles and the company’s formation. Finally, while not mandatory but highly recommended, a startup LLC needs to draft an Operating Agreement. An Operating Agreement is the document which details the structure and operation of the LLC; it species, among other things, how the LLC is managed, how decisions are made, how profits are split between the members, how new members can be join or leave the company, how membership interest is transferred, and how to resolve disputes which arise. The Operating Agreement is highly customizable, which offers more flexibility than a C-Corp, but that flexibility can also mean these documents need to be heavily negotiated to ensure it meets the startup’s needs, both immediately and in the future.