Business legal services in Silicon Valley

Are LLCs the Right Entity for You?

The current economic environment is highly competitive. It is more important than ever that businesses have the right legal structure in place. An LLC might be the right entity for your California business. Indeed, there are many reasons to select an LLC as a business entity. However, an LLC is not the right business entity for every situation. In California, certain types of businesses cannot lawfully operate as an LLC. Here, our Fremont business formation lawyer highlights the key things to know if you are trying to determine if an LLC is the right entity for your company.

Know the Benefits of Forming a Limited Liability Company (LLC)

As explained by the California Franchise Tax Board, a limited liability company is a type of business entity that “blends partnership and corporate structures.” There are a number of different potential advantages to operating as an LLC, including:

  • Ease of set up: It is relatively easy and cost-effective to set up an LLC in California. You will have to select a name for your LLC, complete form LLC-1 and submit it to the Secretary of State and pay California’s annual LLC tax. There are minimal other requirements, including annual compliance costs.
  • Liability protection: Perhaps the primary benefit of an LLC is that it offers strong liability protection. As a member of an LLC in California, your personal assets can be protected from the debts and liabilities of the business. There are limited exceptions, similar to a corporation.
  • Flexibility: A California LLC is a fundamentally flexible business structure. You can effectively structure your company in the way you feel works best—profits, financial obligations, and voting rights can be split however you and the other members desire. 

It is highly recommended that you have a professionally drafted operating agreement for your LLC. A well-crafted agreement will ensure that your rights and interests are properly protected.

California Law: Not All Businesses Can Operate as LLCs

It is important to emphasize that not every type of business can operate as an LLC in California. In fact, most licensed-businesses cannot be structured as an LLC. While there are limited exceptions, you should always consult with an experienced Bay Area business lawyer before moving forward. California law is evolving and certain CSLB, service businesses and home health care businesses can now be structured as LLCs.

For certain types of licensed professionals (lawyers, accountants, architects, etc.), an alternative type of business entity called a limited liability partnership (LLP) is an option. If you have any questions about forming an LLP, our Fremont, CA business formation lawyer can help.

LLCs are Not the Right Entity for Every Business

Even if your specific type of company can operate an LLC in California, it may still not be the best option for your needs. While LLCs offer some strong advantages—low administrative costs, liability protection, flexibility, etc.—there are also some downsides.

Most notably, an LLC operates as a pass-through entity for tax purposes. There will be a self-employment tax for LLC members. For this and other reasons, LLCs are generally not the best option for companies holding significant inventory, leasing expensive commercial space, or that have high overhead costs.

Consult With a Business Lawyer in the Bay Area

Lynnette Ariathurai is an experienced, solutions-driven business formation lawyer. If you have any questions about whether an LLC is the right entity for your business, please contact us today. We serve communities throughout the area, including Fremont, Newark, Union City, East Bay, Milpitas, San Leandro, Santa Clara, Hayward, and San Jose. 

business entity, business formation, business planning, business structure, liability protection, limited liability partnership

Business legal services in Silicon Valley

Steps to Purchase a Business in California

business formation

Are you thinking about buying a business in California? While purchasing an existing business can be exciting, it can also come with complications. If you already own a business and are looking for a new acquisition, you might have a clear idea of the type of business you want to buy. However, if you are just starting out, you should seek advice about choosing the best business in which to invest. You will also want to consider due diligence, and all the steps you will need to take to ensure that you do not end up buying a business that will cause significant problems in the long run. By working with an experienced business law attorney throughout the process, you can feel secure in knowing that you have legal representation to help minimize the risks and to guide you through the business buying process.

When you are considering a business purchase or acquisition, you should consider the following steps.

1. Decide on a Business You Want to Buy

Once you know you want to invest in a new business, the process of identifying the best company can be complicated. For anyone who is seeking to acquire a second (or third, or fourth) company, the process might be a bit easier—you already know your own strengths as a business owner, and you know the industries in which you feel comfortable doing business. If you are new to the business world, you should work with a lawyer who can help you to determine the types of industries that meet your needs, and the specific businesses that you may be interested in purchasing given your previous experience and industry knowledge.

2. Consider Your Financing Options

Most business purchasers need to secure financing to buy a business. Whether you have been involved in a specific industry for years or you are just starting out, your business law attorney can help you to determine the type and amount of financing you might be able to access.

3. Draft an Agreement to Buy the Business

Once you know the business you want to purchase and have a good sense of your financing options, you will work with your lawyer to draft a purchase agreement. The purchase agreement does not bind you to the purchase if there are significant legal issues—uncovering any financial or legal problems with the business can result in the purchase agreement being voided. How will you determine whether there are any major issues that need to be resolved? That is what the next step is for: due diligence.

4. Do Your Due Diligence

According to Score.org and the U.S. Small Business Administration (SBA), doing due diligence is how you will learn about any potential legal or financial problems with the business you want to buy. In performing due diligence, you can ask for a wide variety of materials related to the business, including financial documents, contracts, business equipment, assets, trade secrets, and other intellectual property. This step is also when you will make difficult inquiries about current legal obligations, and any potential legal obligations in the future. Before you buy a business, you need to have clarity about liens, judgments, licenses, permits, zoning issues, debts, and any pending lawsuits.

Your business lawyer will play an important role in the due diligence process and can help you to assess the types of risks you are facing in buying the business. Attorney Lynnette Ariathurai can determine whether the risks and liabilities linked to the business are acceptable and can clarify your options for minimizing future risks if you move forward with the purchase.

5. Closing

If you decide to move forward with the business purchase, you will work with your business lawyer to take all necessary legal steps prior to the closing, at which point you will review and sign the purchase agreement, along with any financial documents.

Contact a Business Lawyer When Buying a Business

Do you have questions about buying a business, or do you need representation for a specific business purchase? Our law firm can assist you from start to finish when it comes to purchasing a business in California. Contact attorney Lynnette Ariathurai today to get started.  We support businesses legal needs in the East Bay area including Fremont, Newark, Hayward, Milpitas, and Union City.

business attorney, business law attorney, buying a business, California business law, purchase a California business, purchasing a business

Business legal services in Silicon Valley

Attorney for Buying a Business

Lynnette Ariathurai, Bay Area Business Attorney

If you are considering a purchase of an existing business, it is important to work with an attorney for buying a business. Purchasing a business can be a complex process, and many legal issues can arise in the process of looking for a business to buy, securing financing for the purchase, and getting the business running again. If you are in the market for a business, you should know that an experienced Fremont business lawyer can provide you with the services you need. As you consider your options for buying a business, the following are issues and concerns that you should consider.

Looking for a Business to Buy: Selection and Marketplace

Seeking out a business to buy can be a complicated process in and of itself. How do you select the type of business to buy? Generally speaking, you should seek out businesses that have ties to your own professional work and expertise. If you do not have experience in a particular industry, buying a business in that field can be much more difficult than buying a business in a field with which you have some familiarity.

Once you decide on the type of business you should be selecting, it will be time to locate the business that you want to purchase. You should work with a lawyer to understand the marketplace and your options for selecting an appropriate business.

Due Diligence Prior to Purchasing a Business

Prior to buying, you should develop a due diligence checklist that includes a variety of tasks you will need to complete with assistance from an experienced business law attorney.

You will also need to secure financing for the purchase. In order to secure financing, you will need to provide a significant amount of information to the lender about the business, which you will gather in the process of conducting due diligence. An article in Reuters discusses key elements of due diligence. Generally speaking, due diligence should include the following for most types of business purchases:

  • Researching the business’s financial information, including any existing liens, debts, tax returns, expenses, profit margins, and inventory;
  • Gather information about the structure of the business and the business formation of the company, which will provide you with information about the business’s bylaws or articles of incorporation, shareholders or investors, and compliance filings;
  • Determine the business’s assets, including commercial real estate, equipment, furniture, and products;
  • Learn about existing employee and customer data, including any existing disputes or litigation;
  • Review existing business contracts, including employment contracts, restrictive covenants, mortgages, leases, stock purchase agreements, and existing agreements with suppliers or vendors;
  • Determine whether there are any existing legal issues or disputes involving the business; and
  • Investigate existing intellectual property, such as existing trademarks or service marks.

Guidance on Liability and Minimization of Risk

If you or your company is considering purchasing a business, it is imperative that you carefully assess all of the potential risks. The absolute last thing you want to deal with is an unanticipated issue that could expose you to legal liability. Among other things, these debts could include employee wages, contractual obligations, loans, state or federal taxes, commercial leases, and other financial responsibilities.

Hiring a Knowledgeable Business Attorney is Important

Given extensive experience practicing business law, your attorney will review all relevant purchase documents, offer guidance on liability, and help you minimize the risks. It may be important to send a bulk sale notice to all affected creditors, including state and federal tax authorities. By doing so, you will notify creditors that assets are being transferred and impose a time limit for them to bring any claim. A well-drafted asset purchase agreement will help to ensure that your company is not subject to unknown liabilities.

With a full understanding of the risks as presented by your business attorney, you and your business partners can better protect your financial interests. In some cases, it may be advisable to buy the company’s individual assets instead of the entire business. In other cases, purchasing an ownership stake in the company may be the best path forward. There are additional ways to obtain protection in a purchase, such as temporarily holding back a portion of the purchase price, including comprehensive indemnification provisions, and obtaining insurance.

Business Law Matters After Your Purchase

Depending upon the type of business you bought, it may be necessary to change the business structure, and you may need legal assistance with business formation questions. New businesses, and new business owners, will also need to draft enforceable contracts for employees, vendors, suppliers, and other parties. Business contracts can be complex, and you should always work with an experienced business lawyer who can ensure that your contracts are likely to be enforceable in the event of a dispute.

The attorney you hire for buying a business can also assist with other outstanding legal items that are likely to arise in the early stages of buying a business.

Contact a Business Lawyer in Fremont

Buying a business can be a complex endeavor, but an experienced California business and corporate attorney can assist you. At The Law Office of Lynnette Ariathurai, we serve clients in Fremont, Hayward, Union City, Milpitas, and Newark, California. Contact attorney Lynnette Ariathurai today for assistance with buying a business.

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Business legal services in Silicon Valley

Reverse Business Merger is an Alternative Way to Obtain Funding

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Mergers & Acquisitions on Monday, May 5, 2014.

Startup companies have many challenges to overcome when starting a new business. One of the most common and significant challenges facing a startup is obtaining venture capital in California or in any other state. Many times there are more startups looking for funding than there are venture capital and Angel investors available. However, one unorthodox method of obtaining capital, which has gained some popularity recently, is using a business merger to garner funding.

However, startups looking to go this route are engaging in a specific type of merger known as a reverse merger. This type of merger is usually utilized in order to avoid the process and expenses related to an Initial Public Offering (IPO). Usually, a dormant shell company is chosen for this type of transaction. However, there are many shell companies that have less than pristine histories; therefore, it is important to properly research a shell company’s past in order to avoid any unforeseen liabilities.

Also, many public shell companies that are ready to be sold are not listed by NASDAQ, but instead are traded on less prestigious avenues. For example, the OTC Bulletin Board is a common place where shell companies are listed instead of the NASDAQ. Although these companies can be renamed and moved to the NASDAQ, this may end up negating any savings on expenses and time, which would be the original intent of a reverse merger.

Additionally, one must be sure to follow all proper rules and regulations when completing a business merger of any kind in California or any other state. This means having full knowledge of applicable laws. Incorporating a compliance strategy into one’s business plan will help to avoid future lawsuits and criminal charges, which would be highly detrimental to any business.

Source: Forbes, “Is A Reverse Merger The Way To Fund Your Startup?“, Martin Zwilling, May 2, 2014

business funding, IPO, Mergers & Acquisitions, reverse merger, shell companies

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